Following the rating actions taken in December 2011, A.M. Best Europe announced that it has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Germany’s Allianz Societas Europaea and its subsidiaries, as well as all debt securities of Allianz, and has removed all of the ratings from under review with negative implications, and has assigned them a stable outlook.
As Best announced in conjunction with these current rating actions, they follow a series of actions taken last December to address the implications for euro zone insurers. Generally it changed the outlook on the ratings, including Allianz SE, to negative from stable, while it carried out a more extensive review.
“Allianz SE continues to maintain sizeable exposures to peripheral euro zone debt (€36 billion [$45.216 billion] at the end of the first quarter of 2012) as well as euro zone financial institutions (which includes approximately€19 billion [$23.864 billion] of senior and subordinated bond exposure at the end of the first quarter of 2012),” Best said.
However, the report also points out that the “majority of these exposures are Italian sovereign debt (€31 billion [$38.936 billion]) backing life reserves, which have significant participatory features. Allianz SE’s risk-adjusted capitalization (both on a stressed and standard basis) remained very strong at year-end 2011, despite significant impairments, and in this context,”
Best said it “deems the organization’s exposures manageable. In addition, Allianz SE holds a significant share of its investments in perceived “safe haven assets” such as German covered bonds (Pfandbriefe) and German, UK and US government bonds, which are likely to appreciate in a stressed scenario.”
The report also highlighted the group’s “very strong business profile and benefits from a very high degree of diversification, both in terms of business and markets, which should help lessen the earnings impact of the continued turbulence in the euro zone.” Best said it expects it to achieve an operating profit of between €7.7 billion [$9.67 billion] and €8.7 billion [$10.93 billion] for the full year.”
Best’s report stresses the “difficult economic conditions,” which are expected to “continue throughout the euro zone as GDP growth for the monetary union is expected to contract in 2012. The impact of austerity measures within the peripheral euro zone countries also remains a risk, due not only to the negative impact such measures appear to be having on economic growth, but also due to the political fallout.”
As far as Allianz is concerned Best said “upward rating movement is unlikely at this point. Negative rating actions could occur if there were a worsening of Allianz SE’s risk-adjusted capitalization tied to investment losses or a deterioration of the operating environment in key territories.”
Source: A.M. Best
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