Best Downgrades Allianz and Subs Issuer Credit Ratings; Affirms FSR

December 15, 2011

A.M. Best Europe – Rating Services Limited has reacted to the ongoing sovereign debt crisis in the euro zone, which it describes as “continued negative developments” with a number of rating actions, starting off with Europe’s biggest insurer Allianz Societas Europaea (Allianz SE).

Best has downgraded the issuer credit ratings (ICR) to “aa-” from “aa”, but has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) on Allianz and its main subsidiaries. However, Best has also placed all of the ratings under review with negative implications.

“These rating actions were driven by Allianz SE’s exposure to investments in several peripheral euro zone economies, Italy in particular, as well as its investment exposures to euro zone banks,” Best explained.

Best also indicated that its “rating actions on Allianz SE and other European (re)insurers reflect their exposure to the continued deterioration of the sovereign creditworthiness of several euro zone countries and the negative economic outlook for the region.”

The rating agency pointed out that it has been “actively monitoring this crisis and released reports on related (re)insurers’ exposure in September and November of this year. The rationale for taking rating action at this point is largely attributable to the current level of credit and liquidity risk for insurers operating within the euro zone countries—most notably Italy and Spain. The perceived strain on the economies of these countries and companies operating within their borders is growing rapidly with very little evidence of a solution being formulated to address near-term concerns.”

In addition Best said Allianz SE’s ratings would remain under review with negative implications while it “examines these companies’ exposure to a prolonged adverse economic environment within the euro zone.”

Best added that it remains particularly concerned by “the exposure to Italy and Spain’s sovereign bonds and the potential for contagion into other asset classes, particularly holdings of European bank securities.”

Best said it would “assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers’ market position and ongoing business operations, adding that “upward rating pressures are unlikely at this point.”

Negative rating actions could occur if there were a worsening of risk-adjusted capitalization tied to investment losses or a deterioration of the operating environment in key territories.

The ICRs have been downgraded to “aa-” from “aa” and the FSR of ‘A+’
(Superior) has been affirmed for Allianz Societas Europaea and its following subsidiaries:

— Allianz Lebensversicherungs-AG
— Allianz Versicherungs-AG
— Allianz Private Krankenversicherungs-AG
— Euler Hermes Kreditversicherungs-AG
— Allianz S.p.A
— Allianz Insurance plc
— Allianz Vie
— Allianz IARD
— Allianz Global Corporate and Specialty AG
— Allianz Global Corporate & Specialty (France) S.A.

The ICR has been downgraded to “a-” from “a” for Allianz France S.A.

The FSR of ‘A ‘(Excellent) and the ICR of “a+” have been affirmed for AGA International S.A.

The ICR has been downgraded to “a” from “a+” and the FSR of ‘A’ (Excellent) has been affirmed for Allianz Risk Transfer AG.

The following debt ratings have been downgraded:

Allianz Finance II B.V. (guaranteed by Allianz SE)—
— to “aa-” from “aa” on €0.9 billion [$1.17 billion] 5.625 percent senior unsecured bonds, due
2012
— to “a+” from “aa-“on €2 billion [$2.6 billion] 5.75 percent subordinated bonds, due 2041
— to “aa-” from “aa” on €1.5 billion [$1.95 billion] 4.75 percent senior unsecured bonds, due
2019
— to “aa-” from “aa” on €1.5 billion [$1.95 billion] 4.0 percent senior unsecured bonds, due
2016
— to “aa-” from “aa” on €0.5 billion [$650 million] 5.0 percent senior unsecured bonds, due
2013
— to “a+” from “aa-“on € 2 billion [$2.6 billion] 6.125 percent senior subordinated bonds, due
2022
— to “a+” from “aa-“on €1 billion [$1.3 billon] 6.5 percent senior subordinated bonds, due
2025
— to “a+” from “aa-“on €1.4 billion [$1.82 billion] 4.375 percent undated junior subordinated bonds
— to “a+” from “aa-” on €0.800 billion ($1.04 billion] 5.375 percent undated subordinated bonds
— to “a+” from “aa-“on $0.5 billion [$650 million] 7.25 percent perpetual subordinated bonds

Allianz SE—
— to “a+” from “aa-“on $2 billion 8.375 percent undated subordinated bonds
— to “a+” from “aa-“on €1.5 billion [$1.95 billion] 5.5 percent perpetual junior subordinated bonds

Allianz France S.A.—
— to “bbb+” from “a-” on €0.4 billion [$520 million] 4.625 percent junior subordinated notes

Source: A.M. Best

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