Best Europe Affirms ‘A+’ Ratings of Allianz SE and Subsidiaries

July 11, 2013

A.M. Best Europe – Rating Services Limited 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 of Allianz SE’s debt securities.

Best said the ratings “reflect Allianz SE’s excellent risk-adjusted capitalization and strong earnings in 2012 and 2013 to date. Due to its geographic scope and size, Allianz SE continues to maintain sizeable exposures to peripheral euro zone sovereign debt (€32 billion [$42 billion] at the end of the first quarter of 2013) as well as European financial institutions.”

However, Best’s report also pointed out that the “group actively de-risked its asset base in 2012. This de-risking added to the increase in Allianz SE’s retained earnings resulting in improved capitalization at year-end 2012.”

The ratings report cited the current “low interest rate environment” as an additional “risk factor,” indicating that “although the record low interest rates on German bonds pose a challenge to Allianz SE’s life operations,’ Best said it “believes that the group can continue to service investment guarantees on German life products, even if interest rates remain at their current level for the foreseeable future.

“Despite the challenging market conditions, Allianz SE’s profit before tax has strengthened in the last 18 months, driven by improving motor rates and low natural catastrophe losses, a solid contribution from the asset management segment and good life results.”

As with many re/insurers, the low yields from investment income, which so far shows no signs of improvement, has induced Allianz SE to focus on “reinforcing its underwriting discipline and reducing the group’s structural complexity,” Best said. “Allianz SE reported strong net earnings of €1.7 billion [$2.22 billion] in the first quarter of 2013, and it expects to achieve an operating profit of between €8.7 billion and €9.7 billion [$11.37 and $12.68 billion] for the full year.”

The report describes Allianz SE as maintaining “an excellent business profile” as well as benefitting from a “very high degree of diversification, both in terms of businesses and markets.

“Revenues are expected to increase by roughly 5 percent in 2013, driven by a flight to quality in the retail lines and ongoing expansion in growth markets, supported by the acquisition of Yapi Kredi in Turkey and a distribution agreement with HSBC covering the Asian markets.”

Best said, however, that “without a more lasting solution to the euro zone imbalances and macro-economic conditions in Southern Europe, upward rating actions are unlikely at this time.

“Negative ratings actions could occur if there is a worsening in Allianz SE’s risk-adjusted capitalization, which could be the result of investment write-downs or a deterioration of economic conditions in key territories.”

In a related action Best affirmed the FSR of ‘A+’ (Superior) and ICR of “aa-” of Allianz Insurance plc. (United Kingdom), and has withdrawn those ratings since management has requested to no longer participate in A.M. Best’s interactive rating process.

Best summarized the rating actions as follows:

The FSR of A+ (Superior) and ICRs of “aa-” have 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 Global Corporate and Specialty AG
• Allianz Global Corporate and Specialty FR

The FSR of ‘A’ (Excellent) and ICR of “a+” have been affirmed for Allianz Risk Transfer AG.

The following debt ratings have been assigned:
Allianz Finance II B.V. (guaranteed by Allianz SE)—
— “aa-” on EUR 750 million 3 percent senior unsecured bonds, due 2028
— “aa-” on GBP 750 million 4.5 percent senior unsecured bonds, due 2043
— “aa-” EUR 500 million 1.375 percent senior unsecured bonds, due 2018

Allianz SE—
— “a+” on EUR 1.5 billion 5.625 percent subordinated bonds, due 2042

The following debt ratings have been affirmed:
Allianz Finance II B.V. (guaranteed by Allianz SE)—
— “a+” on EUR 2 billion 5.75 percent subordinated bonds, due 2041
— “aa-” on EUR 1.5 billion 4.75 percent senior unsecured bonds, due 2019
— “aa-” on EUR 1.5 billion 4.0 percent senior unsecured bonds, due 2016
— “a+” on EUR 1 billion 6.5 percent subordinated bonds, due 2025
— “a+” on EUR 1.4 billion 4.375 percent perpetual subordinated bonds
— “a+” on EUR 800 million 5.375 percent perpetual subordinated bonds
— “aa-” on EUR 1.5 billion 3.5 percent senior unsecured bonds, due 2022

Allianz SE—
— “a+” on USD 1 billion 5.5 percent perpetual subordinated bonds
— “a+” on EUR 1.5 billion 5.5 percent perpetual subordinated bonds

The following debt ratings have been withdrawn due to their maturity and redemption:
Allianz Finance II B.V. (guaranteed by Allianz SE)—
— “a+” on USD 2 billion 8.375 percent undated subordinated bonds redeemed in June
2013
— “aa-” on EUR 1.5 billion 5.0 percent senior unsecured bonds matured in March
2013

Source: A.M. Best Europe

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