Best Lowers Ratings on Two Allianz Swiss Subsidiaries

January 21, 2003

A.M. Best Co. announced that it has lowered the financial strength ratings of Allianz Suisse Versicherungs-Gesellschaft and Allianz Suisse Lebensversicherungs-Gesellschaft- both referred to as Allianz Suisse -to A+ (Superior) from A++ (Superior), and has removed its under review status with negative implications from both companies. The outlook, however, remains “negative.”

“These rating actions reflect A.M. Best’s view that Allianz Suisse is no longer core to its ultimate parent company Allianz AG,” said the announcement. “Additional rating factors include Allianz Suisse’s strong overall business position in the Swiss market, its reduced consolidated capitalisation and weak but improving operating performance.”

Best noted that a “decline in consolidated capitalisation and a deterioration in Allianz Suisse’s overall operating performance” had led it to conclude that Germany’s Allianz AG no longer views the two companies as core subsidiaries. Best said, however, that it believes that the companies do remain “strategically important as Allianz Suisse’s strong business position in the Swiss insurance market enhances Allianz’s geographic presence.”

The companies posted total premiums of SFr 3.6 billion ($2.63 billion) in 2001, and they rank as “number three in the Swiss non-life market with a share of 8.5% — including the subsidiaries Alba Versicherung and CAP Rechtschutz — and number six in the life market with a share of 5.2%,” Best noted. It also said it “expects stable premium income in 2002 as a result of strong competition in the Swiss non-life market and Allianz Suisse’s decision to concentrate on more profitable individual life business.”

“Allianz Suisse’s consolidated risk-adjusted capitalisation based on A.M. Best’s capital model has been reduced in 2002, following significant write-downs in Allianz Suisse’s investment portfolio and the utilisation of cash reserves,” said the bulletin. Best indicated, however, that it “expects an improved risk-adjusted capitalisation in 2003 through retained earnings, but it is unlikely to be restored to a previous superior level.”

The weak overall operating performance has been largely the result of “significantly lower investment income and pressure on life earnings from the 4% minimum guarantee for group life contracts,” said Best. It noted that a recent decision by the Swiss government “to reduce this guarantee to 3.25% will alleviate this pressure.”

“Allianz Suisse has adopted a more conservative investment strategy by reducing its equity exposure and increasing its bond portfolio. A.M. Best believes that Allianz Suisse may find it difficult to significantly improve overall earnings within the current low interest rate environment,” the bulletin continued.

“The negative outlook reflects A.M. Best’s concerns that Allianz Suisse’s consolidated risk-adjusted capitalisation could further deteriorate if weak equity markets and pressure on life persist in 2003,” the announcement concluded.

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