Best Affirms FSR for Lloyd Adriatico S.p.A.; Outlook Negative

July 19, 2005

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and the issuer credit rating of “aa-“of Lloyd Adriatico S.p.A. (Italy). The outlook for both ratings remains negative, which is in line with the outlook for Lloyd Adriatico’s parent company, Allianz AG (Allianz).

The rating reflects the enhancement received from the implicit support of its ultimate parent for which it underwrites more than 25% of its total gross premium income in Italy.

The rating also reflects Lloyd Adriatico’s consolidated risk-adjusted capitalisation, which is expected to remain at an excellent level in 2005, supported by its strong profitability and factoring the substantial dividend policy in favour of the parent company.

Lloyd Adriatico’s non-life underwriting performance is likely to remain superior with an anticipated combined ratio of approximately 80% in 2005, thanks to an effective risk selection in its motor business, which comprises 74% of non-life gross written premiums. Although the overall motor market is likely to soften in late 2005 and into 2006 because of increasing competition, A.M. Best believes that Lloyd Adriatico’s effective risk selection (such as the avoidance of large cities) and variable deductibles system make underwriting results less price sensitive than most of its competitors.

Lloyd Adriatico’s life portfolio, which is likely to grow approximately 15% in 2005 and accounting for more than 50% of consolidated gross written premiums, is equally balanced between traditional policies with minimum guarantees and linked policies.

A.M. Best believes profitability is likely to return to excellent historical levels in 2005 as the company benefits from low expense levels and strong performance of its unit-linked products, which carry higher margins.

However, 60% of traditional life reserves carry relatively high minimum guarantees for policyholders (up to 4%), therefore limiting the earning potential for these products.

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