Allianz Deutschland's Aa2 IFSRs affirmed, outlook revised to stable; Allianz US Life IFSR upgraded to A1
London, 10 October 2017 -- Moody's Investors Service has today affirmed the Aa3 insurance financial
strength rating (IFSR) and the Aa3 senior unsecured debt rating of Allianz
SE. At the same time, Moody's affirmed the Aa2 IFSRs
of Allianz Versicherungs-AG and Allianz Lebensversicherungs AG
(Allianz Leben) and revised the outlook to stable from negative,
and upgraded the IFSR of Allianz Life Insurance Company of North America
(Allianz Life) to A1 from A2.
The outlooks are stable for all Allianz's entities except for Allianz
S.p.A. whose outlook is negative in line with the
Italian sovereign debt.
A list of all affected ratings is available at the end of this press release.
RATINGS RATIONALE
ALLIANZ SE -- AFFIRMED AT Aa3 SENIOR UNSECURED DEBT
The affirmation of Allianz SE's ratings reflects the Group's
very strong franchise and business and geographic diversification,
strong operating profitability and capitalisation, and very strong
financial flexibility. Less positively, the group's life
insurance business is likely to continue to face constrained profitability
in a low-interest rate environment, and Allianz has a high,
though reducing, concentration risk to Italy.
With regard to its business profile, Moody's expects Allianz
to maintain its very strong franchise in most of its core markets,
including Germany where it has a leading position in life and non-life.
Allianz is also one of the largest global asset managers, especially
via PIMCO, which has seen increasing positive net flows from Q3
2016 and which Moody's expects to continue to meaningfully contribute
towards the group's earnings. In 2016, the diversification
of Allianz's operating profit was very well-balanced,
split between non-life 46%, life & health 35%,
and asset management 19%.
The stable outlook also reflects Moody's expectation that Allianz's
operating performance will remain strong, following the improvements
in 2016 and, in particular, in H1 17. At the end of
June 2017, Allianz reported a 16% and 17% increase
in operating profit and net income to €5.9 billion and €4
billion respectively, with the Group reporting a ROE of 13.4%
compared to its target of 13% by 2018. The P&C combined
ratio and life new business margin also improved to 94.6%
(H1 16: 94.9%) and 3.3% (H1 16:
2.6%) respectively.
Going forward, Moody's expects the P&C result in H2 17
to be somewhat constrained by losses from the recent US hurricanes and
the very low interest rate environment to be a key profitability headwind.
Specifically, Moody's expects the Group's investment
yield to continue to decline. Low interest rates are especially
challenging for the Group's life business which has relatively high
guarantees in many core markets notably Germany. However,
Moody's highlights that the aggregate spread between Allianz's
asset yield (3.5% in 2016) and the average guaranteed rate
on life policies (2.1%) continues to provide the Group with
some flexibility to manoeuvre by reducing credited rates to policyholders.
Allianz's asset management segment has also faced pressure with
operating profit declining again in 2016 by 4% to €2.2
billion, negatively impacted by reduced revenues and performance
fees. However, during H1 17 PIMCO has recorded positive third
party net flows of €73 billion which has helped increase the Group's
asset management operating profit by 20%. Going forward,
Moody's expects the contribution of asset management to the Group's
operating profit to remain relatively stable.
Moody's expects that Allianz will continue to report a return on capital
(Moody's definition, with capital comprising shareholders'
equity, free RfB reserve and hybrid capital) above 6% and
earnings coverage of at least 6x-8x.
Moody's also expects the Group's capitalisation to remain
strong. At YE16, Allianz's Solvency II ratio improved
to 218% (YE15: 200%) and further to 219% as
at H1 17, notwithstanding the full impact of the Group's €3bn
share buy-back programme. Like for many of its peers,
the ratio is sensitive to financial market movements, although Allianz
has meaningfully reduced its interest rate sensitivity since 2015.
The Group's adjusted financial leverage, which further improved
to 24.6% (YE15: 25.2%) during 2016,
is expected to remain supportive of the Aa3 credit profile.
Allianz continues to have a high, though reducing, concentration
risk to Italy, which has some negative impact on its overall credit
profile. At YE16, the Group generated around 12% (YE15:
14%) of its insurance revenues and around 13% of its earnings
in Italy (YE15: 14%). Allianz also has significant,
though reducing, exposure to Italian assets, with around 3.8%
of Group investments held in Italian sovereign bonds at YE16 (YE15:
4.6%), which represented around 35% (YE15:
44%) of the Group's reported total equity. Notwithstanding
the negative outlook assigned by Moody's to Allianz S.p.A
in line with the Italian sovereign rating, we currently consider
the weight of Italian exposure within the Group to be consistent with
an Aa3 rating, stable outlook for Allianz SE.
ALLIANZ GERMANY
The change in outlook to stable from negative reflects the resilience
shown in a low interest rate environment by Allianz's German life
business which has demonstrated relatively stable operating profitability,
success in changing its new business mix, an improved new business
margin, and very strong capitalisation. Moody's said
that the affirmation of Allianz Versicherungs-AG and Allianz Leben's
Aa2 IFSRs reflects the considerable strengths of the companies including
an outstanding competitive position, a good level of diversification,
and strong profitability which Moody's expects to continue.
Moody's elaborated that with an average guaranteed rate of 2.5%
at YE16, the risk profile of Allianz Germany's life business
remains relatively high with profitability and economic capital vulnerable
to persistently low interest rates. However, interest rate
pressure is being alleviated by Allianz's successful growth in capital-light
and less interest-rate sensitive products to about 55% of
its German life & health new business in 2016 (2015: 44%).
This change in business should continue to benefit the new business margin
which has increased significantly to 4% at Q2 17 from 2.1%
at YE15, albeit mainly driven by model changes. Nevertheless,
existing guaranteed products will continue to form a significant part
of the balance sheet for some years.
Allianz Leben's Solvency II ratio at 379% without transitional
measures as at YE16 is testament to the company's strong economic capitalisation.
The ratio benefits from surplus funds which are not fully fungible across
the Allianz Group, and in reducing sensitivity to interest rates
and lowering guarantees on new business Allianz has been able to offset
the decline in interest rates in 2015 and 2016. Nevertheless,
the ratio remains sensitive to interest rate movements -- a 50bp
reduction in interest rates is estimated by Allianz to reduce the ratio
by 36% points. Allianz have also disclosed that if modelled
for negative interest rates, Allianz Leben's YE16 Solvency
II ratio would reduce to 320%. Going forward, we expect
Allianz Leben's capital adequacy to remain very strong with a Solvency
II ratio consistently above 250%. Furthermore, we
note the strong Solvency II ratio at YE16 of 245% of Allianz Versicherungs-AG.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA -- IFSR UPGRADED
TO A1
Moody's upgrade of Allianz Life's IFSR to A1 and stable outlook
reflects the improvement in the company's standalone credit profile,
which was raised to A2, and the strong implicit support of Allianz
Group. The standalone credit profile of Allianz Life reflects the
company's positive trajectory with improvements in its business
and financial profile factors.
The rating reflects Allianz Life's leading market position in the fixed
indexed annuity (FIA) market as well as its large block of inforce fixed
annuities and sizeable variable annuity business in the US. The
company is frequently innovating new products and continues to grow its
life insurance business. The rating agency considers risk management
is a key strategic focus of the company and frequent product adjustments
have led to strong profitability over the past several years. Allianz
Life's capital adequacy is good with a NAIC company action level
(CAL) risk based capital (RBC) ratio of 343% at year-end
2016. Offsetting these positive attributes are the risks inherent
in the company's relatively complex product portfolio.
According to Moody's, Allianz Group's commitment and
implicit support for Allianz Life remains strong. Allianz Life
is an increasingly important contributor to Allianz Group representing
9% of total Allianz SE profitability in 2016. The US operations
share the Allianz brand name and the Group's global hedge platform
is located at Allianz Life in Minneapolis.
WHAT COULD MOVE THE RATINGS DOWN/UP
ALLIANZ SE
In terms of rating drivers going forward, Moody's said that positive
rating pressure could arise from: 1) Sustained decrease in financial
leverage to below 20% and/or; 2) sustainable capitalisation
at a very high level, both in absolute terms and compared to the
peer group and/or; 3) improvements in profitability as evidenced
by a Return on Capital (Moody's definition, with capital comprising
shareholders' equity, free RfB reserve and hybrid capital) consistently
above 8% and fixed charge coverage consistently above 9x across
the underwriting cycle.
Conversely, negative rating pressure could arise from: 1)
Sustained rise in adjusted financial leverage beyond 30% and/or;
2) deterioration in profitability as evidenced by a Return on Capital
(Moody's definition, with capital comprising shareholders' equity,
free RfB reserve and hybrid capital) below 5% and fixed charge
coverage below 5x across the underwriting cycle and/or; 3) deterioration
in stand-alone credit fundamentals of main operating entities.
ALLIANZ GERMANY
In terms of rating drivers going forward, Moody's said that
there is limited upside potential on the Aa2 ratings of Allianz Deutschland
although significantly lowered exposure to the interest rate risk of the
life portfolio while maintaining a very strong solvency position could
place upwards pressure on the ratings.
Conversely, negative rating pressure could arise from: 1)
A consistent reduction in operating profitability and/or; 2) deterioration
in Allianz Deutschland's capitalisation (e.g., with
a life entity's Solvency II ratio consistently below 250% without
transitional measures) and/or; 3) a weakening in its asset quality
and/or; 4) a deterioration in the credit quality of Allianz SE.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
The following factors could place upward pressure on the ratings of Allianz
Life: 1) implementation of an explicit guarantee from Allianz SE
in favor of Allianz Life; 2) NAIC CAL RBC ratio at Allianz Life consistently
above 400%; 3) Return on capital (ROC) at Allianz Life consistently
above 8%; and/or 4) Reduction of equity market sensitivity
of earnings and capital and greater diversification with protection products.
Conversely, the following could place downward pressure on the ratings
of Allianz Life: 1) a multi-notch downgrade of Allianz SE;
2) ROC consistently below 5%; 3) NAIC CAL RBC ratio at Allianz
Life below 325%; and/or 4) loss of distribution channels other
than its core field marketing organization (FMO) channel, leaving
the company effectively with a single distribution channel.
SUMMARY PROFILE OF AFFECTED GROUP
Allianz SE is the ultimate holding company of the Allianz Group and is
publicly traded on the Frankfurt Stock Exchange. The Group is headquartered
in Munich and had total assets of around €884 billion at year-end
2016.
LIST OF AFFECTED RATINGS
Issuer: Allianz SE
..Affirmations:
....Insurance Financial Strength Rating,
affirmed Aa3
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa3
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa3
....Subordinate Regular Bond/Debenture,
affirmed A2(hyb)
....Subordinate Medium-Term Note Program,
affirmed (P)A2
....Junior Subordinated Regular Bond/Debenture,
affirmed A2(hyb)
....Junior Subordinate Medium-Term
Note Program, affirmed (P)A2
....Commercial Paper, affirmed P-1
..Outlook Action:
....Outlook remains Stable
Issuer: Allianz Finance Corporation
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
....No Outlook assigned
Issuer: Allianz Finance II B.V.
..Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa3
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Aa3
....Backed Subordinate Regular Bond/Debenture,
affirmed A2(hyb)
....Backed Subordinate Medium-Term
Note Program, affirmed (P)A2
....Backed Junior Subordinated Regular Bond/Debenture,
affirmed A3(hyb)
....Backed Junior Subordinate Medium-Term
Note Program, affirmed (P)A2
..Outlook Action:
....Outlook remains Stable
Issuer: Allianz Lebensversicherungs AG
..Affirmation:
....Insurance Financial Strength Rating,
affirmed Aa2
..Outlook Action:
....Outlook changed to Stable from Negative
Issuer: Allianz Versicherungs-AG
..Affirmation:
....Insurance Financial Strength Rating,
affirmed Aa2
..Outlook Action:
....Outlook changed to Stable from Negative
Issuer: Allianz S.p.A.
..Affirmation:
....Insurance Financial Strength Rating,
affirmed A3
..Outlook Action:
....Outlook remains Negative
Issuer: Allianz Life Insurance Company of North America
..Upgrade:
....Insurance Financial Strength Rating,
upgraded to A1 from A2
..Outlook Action:
....Outlook remains Stable
PRINCIPAL METHODOLOGIES
The principal methodologies used in rating Allianz SE, Allianz Finance
Corporation, Allianz Finance II B.V. and Allianz S.p.A.
were Global Life Insurers published in April 2016, and Global Property
and Casualty Insurers published in May 2017. The principal methodology
used in rating Allianz Lebensversicherungs AG and Allianz Life Insurance
Co of North America was Global Life Insurers published in April 2016.
The principal methodology used in rating Allianz Versicherungs-AG
was Global Property and Casualty Insurers published in May 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved Allianz SE, Allianz Finance Corporation,
Allianz Finance II B.V., Allianz Lebensversicherungs
AG, Allianz Versicherungs-AG and Allianz S.p.A.
credit ratings is Antonello Aquino, Associate Managing Director,
Financial Institutions Group, JOURNALISTS: 44 20 7772 5456,
SUBSCRIBERS: 44 20 7772 5454. The person who approved Allianz
Life Insurance Co of North America credit ratings is Marc Pinto,
MD - Financial Institutions, Financial Institutions Group,
JOURNALISTS: 212-553-0376, SUBSCRIBERS:
212-553-1653.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the website.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Dominic Simpson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
