Fitch Ratings-Frankfurt/London-11 December 2015: Fitch Ratings has affirmed Germany-based Allianz SE’s Insurer Financial Strength (IFS) rating at ‘AA’ and Long-term Issuer Default Rating (IDR) at ‘AA-‘. At the same time, the agency has affirmed Allianz’s main subsidiaries’ IFS rating at ‘AA’. The Outlook on all ratings is Stable. A full list of rating actions is at the end of this commentary.
KEY RATING DRIVERS
The affirmation reflects Allianz’s strong technical profitability, very strong consolidated group capital position, broad diversification by geography and product, and solid business position in its key markets. In addition, the group’s ratings also benefit from an investment mix of sound credit quality. Partially offsetting these rating factors are the currently suppressed profitability at its asset management subsidiary, PIMCO, and a challenging medium-term outlook for some of Allianz’s life markets.
Allianz scores “Very Strong” in Fitch’s Prism factor-based capital model (FBM) based on end-2014 data, which is supportive of the rating. The group’s core capitalisation remained strong at end-9M15 with shareholders’ funds of EUR61.3bn (end-2014: EUR60.7bn) and the Solvency II capitalisation improving to 200% (end-2014: 191%).
The subdued outlook for economic growth in the eurozone, low interest rates, and a possible re-intensification of the peripheral eurozone debt crisis creates a challenging operating environment. For 2016 Fitch expects that sound underwriting profitability from the non-life business will help Allianz offset earnings from asset management, which are likely to remain under pressure.
For 9M15 Allianz reported an operating profit of EUR8.15bn (9M14: EUR8.14bn), composed of EUR4.4bn (+2.9%) from property/casualty insurance, EUR2.7bn (+1.5%) from life/health insurance, EUR1.7bn (-17.6%) from asset management, and EUR-0.6bn (+16%) from corporate and other. Asset management continued to suffer from net asset outflows at PIMCO, which appear to have peaked by end-2014. The combined ratio deteriorated slightly to 94.1% (93.6%). For 9M15, net profit attributable to shareholders increased by 3.9% (EUR5.2bn).
Allianz is one of the largest insurance groups in Europe. IFRS gross written premiums were EUR74bn and total assets stood at EUR806bn at end-2014. The group is active in both the non-life and life/health businesses as well as in asset management and has a strong business position and franchise.
RATING SENSITIVITIES
Key rating triggers that could lead to a downgrade include a deterioration of Allianz’s capital position, with its Prism FBM score falling below ‘Very Strong’ for a prolonged period of time or a sustained decline in profitability with a net return on equity below 9%.
An upgrade is viewed as unlikely by Fitch over the medium term, but upgrade triggers include a sustained significant increase in the Prism FBM score to “Extremely Strong”, a decline of the financial leverage ratio to below 15%, and a sustained strong improvement in profitability with a return on equity consistently above 15%.
