Best’s News & Research Service - November 13, 2007 11:34 AM (EST)
A.M. Best Upgrades Issuer Credit Ratings of Allianz Societas Europaea and Its Subsidiaries
OLDWICK, N.J. //BestWire// - A.M. Best Co. has upgraded to “aa” from “aa-” the issuer credit ratings (ICR) of Allianz Societas Europaea (Allianz SE) (Germany) and its subsidiaries. At the same time, A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) of Allianz SE and upgraded to “aa” from “aa-” the ratings on senior debt and to “aa-” from “a+” on subordinated debt issued or guaranteed by Allianz SE. (See below for a detailed listing of the ratings.) The outlook on all ratings remains stable.
The rating actions reflect A.M. Best’s view of improving operating performance, strong risk-adjusted capitalisation and very strong business position, particularly in Germany and other European countries.
Allianz SE enjoys very strong business positions, mainly in Continental Europe and especially in Germany, Italy and France. Continuing strong demand for life insurance in Germany and Eastern Europe is offsetting the decline in annuities in the United States. In Italian life business, the company is experiencing a turnaround after two years of declining premiums due to problems with its bancassurance agreements. There are indications that the decline in U.S. equity indexed annuities is slowing down. However, Allianz SE succeeded in reversing the overall trend of the last two quarters and is back to a considerable growth rate in premium income. Compared to third quarter 2006, premium income in the life/health business increased by 4.3%.
The segment shows a high level of profitability, and the operating margin has risen by over one third compared to the previous year’s quarter. A.M. Best believes that the trend of the slight decline of statutory life premiums shown in the nine months of 2007 (down 1.5% from the same period in 2006) is likely to continue to the year end. In property/casualty, premiums are likely to show moderate growth of 2%-3% during 2007 as the impact of increasing competition, especially in motor and industrial lines of business, is offset by strong growth in the United Kingdom and specialty lines of business. Dresdner Bank (Allianz SE’s main banking subsidiary) is experiencing strong growth in 2007, with operating profit for the first nine months up by 2.8%, while asset management continues the growth trend observed since 2005 with revenues increasing by almost 3% during the same period.
Allianz SE reported strong growth of 7% in operating income of EUR 8.76 billion (USD 11.87 billion) during the first three quarters of 2007. This was mainly driven by the continuing decline in management expenses, improving profitability in life business and asset management, which more than offset the impact of increased catastrophic activity and increased the provisions of Dresdner Bank during the third quarter. Effective tax rates increased following the reduction in tax-exempt income; however, the locking in of unrealised gains in Allianz SE’s equity portfolio during the first quarter of the year helped the company report over 20% increase in net income to EUR 1.9 billion (USD 2.62 billion). A.M. Best expects operating profits for the full year 2007 to be in the range of EUR 10.0 – 11.0 billion (USD 13.6 – 14.9 billion) (compared to EUR 10.32 billion [USD 13.15 billion] in 2006) due to the lack of significant one-off items that impacted the second half of 2006. High investment income and increased dividend payments resulted in a 27.5% increase in operating profits arising from the life/health business during the first three quarters of 2007, while in property/casualty, the increased catastrophic activity led to a 2.4 percentage point increase of the combined ratio to 94.6% and a 6.3% decline of operating profits for the segment during the same period. Dresdner Bank continues its recovery with further improvement of cost income to 74.7%; however, the company reported increased loss provisions of EUR 575 million (USD 780 million). Operating profits for the asset management operations increased by 8% by September 2007.
Allianz SE’s risk-adjusted capitalisation improved significantly during 2006, driven by the significant growth in retained earnings. The acquisition of the AGF minority shareholding during the first quarter of 2007 and the reduced net income projected for the full year will lead to a decline in risk-adjusted capitalisation. Following this, A.M. Best expects risk-adjusted capitalisation to remain stable and in line with the current ratings.
For a complete listing of Allianz SE’s FSRs, ICRs and debt ratings, please visit http://www.ambest.com/press/111301allianzse.pdf.