A.M. Best Europe – Rating Services Limited has removed from under review with negative implications and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Allianz Risk Transfer AG (ART), which is based in Switzerland, and has assigned a stable outlook to both ratings.
These rating actions correspond with the removal from under review and affirmation of the FSR and ICR of the group’s ultimate parent company, Germany’s Allianz Societas Europaea. Allianz SE’s ratings were placed under review in December 2011 due to the company’s exposure to investments in several peripheral euro zone economies, Italy in particular, as well as its investment exposure to euro zone banks.
Best nonetheless indicated that Allianz SE “continues to maintain sizeable exposure to peripheral euro zone debt as well as euro zone financial institutions. However, the majority of these exposures are Italian sovereign debt backing life reserves, which have significant participatory features.
“Allianz SE’s risk-adjusted capitalisation (both stressed and standard basis) remained very strong at year-end 2011 despite significant impairments, and in this context,” Best said it “deems the group’s exposure manageable.” In addition, “Allianz SE holds a significant share of its investments in perceived ‘safe haven assets,’ such as German covered bonds and German, UK and US government bonds, which are likely to appreciate in a stressed scenario.”
In addition Best pointed out that Allianz SE “maintains a 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 continued turbulence in the euro zone.
Allianz SE reported strong net earnings in the first quarter of 2012, and Best said it “expects the group to achieve an operating profit over the near term.” Best also siad it “deems the strength of expected operating profits a positive buffer against the potential negative earnings impact of volatile capital markets.
“The ratings of ART reflect its integration into its immediate parent, Allianz Global Corporate & Specialty AG (AGCS), in terms of business strategy and management. ART’s ratings also recognize the implicit support the company receives in the form of business integration as well as the explicit support from AGCS AG in the form of reinsurance, including stop loss reinsurance.”
Best added that “while the rating outlook for ART is stable, future positive rating actions are unlikely at this point.
“Negative rating actions could result if ART’s operating performance falls markedly short of Best’s expectations, if there is a considerable deterioration in risk-adjusted capitalisation as measured by Best’s Capital Adequacy Ratio or if there is a diminution in ART’s strategic importance to Allianz SE. Additionally, negative rating actions could occur if there were negative rating actions on Allianz SE.”
Source: A.M. Best
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