A.M. Best Downgrades Allianz Ratings

A.M. Best Downgrades Allianz Ratings

NU Online News Service, March 24, 4:22 p.m. EST?The insurance rating firm A.M. Best Co. announced it has lowered financial strength rating of German insurance giant Allianz AG to "A-plus" (Superior) from "A-double-plus" (Superior).

A.M. Best also said it downgraded ratings on Munich, Germany-based Allianz's senior debt to "double-a-minus" from "double-a-plus", with a "negative" outlook on all ratings.

The Oldwick, N.J.-based A.M. Best's ratings downgrade follows Allianz's announcement last week that the company suffered its worst-ever annual loss in 2002, losing 1.2 billion euros, or $1.3 billion, last year. For the fourth quarter, the company lost 243 million euros, or $258 million, compared with a net profit of 304 million euros, $323 million, for the year-ago period.

Standard & Poor's in New York also took a similar action earlier, lowering its long-term financial strength and counterparty rating to "double-a-minus" from "double-a". Citing Allianz's 2002 losses and weak capitalization, S&P also warned that ratings could be lowered even further in the future.

Last week, Allianz cited heavy losses from poor-performing stock markets as well as troubles from its Dresdner Bank subsidiary for its disappointing financial results. In 2002, the company lost 5.5 billion euros, or $5.8 billion, on its investments and suffered a 1.4 billion-euro, or $1.5-billion, loss at its Dresdner Bank. The insurer also listed a reserve-strengthening for asbestos claims at U.S. group Fireman's Fund and payouts for heavy flooding in Eastern Europe last August.

One silver lining in Allianz's 2002 figures, however, was the company's premium income for its core insurance business, which had gone up by nearly 10 percent to 82.6 billion euros, or $87.6 billion.

In light of its huge losses, the company said it is planning to raise five-billion euros, or $5.3 billion, in new capital to boost reserves. The capital-boosting measures will include a 3.5-to-four billion euro rights issue and the issue of other debt and equity-linked securities of some 1.5 billion euros.

"These rating actions reflect Allianz's deteriorated consolidated capitalization and weak earnings," A.M. Best stated in its report. Allianz, A.M. Best said, still maintains a superior business profile, but it will find it challenging to significantly improve earnings this year because of depressed capital markets.

"Allianz's consolidated capitalization has deteriorated mainly due to a significant decline in unrealized gains in its investment portfolio and disappointing results from Dresdner Bank," A. M. Best said. And although the announced capital-boosting measures and other initiatives are supportive of the current rating level, A.M. Best said it believes that "in the short term, Allianz is unlikely to return to previous superior capital levels in the current economic environment."