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Rating Action:

Moody's affirms Allianz SE's Aa3 senior debt rating with a negative outlook

30 Apr 2013

London, 30 April 2013 -- Moody's Investors Service has today affirmed the Aa3 insurance financial strength rating (IFSR) and debt ratings of Allianz SE. The outlook on these ratings remain negative.

At the same time, Moody's took the following rating actions on Allianz SE's subsidiaries:

- Moody's affirmed the A2 IFSRs of Fireman's Fund Companies' insurance entities and changed the outlook to negative from stable on this rating

- Moody's affirmed the IFSRs of certain of Allianz's operating insurance subsidiaries in Europe

A list of all the ratings affected by this rating action is available at the end of this press release.

RATINGS RATIONALE

The affirmation of Allianz SE's ratings reflects the group's strong business profile, supported by an excellent geographic and business diversification, and strong financial profile, with good capitalisation, financial flexibility and excellent profitability.

In 2012, Allianz reported an operating profit of EUR9.5 billion, notably supported by strong performance of its asset management business (EUR3 billion operating profits), which enabled the group to improve its capitalisation (197% solvency I ratio at year-end 2012), financial leverage (27.8% at year-end 2012, on Moody's basis, including adjustments for pensions and operating leases) and earnings coverage (6.8x in 2012). In spite of the weak economic environment and the low level of interest rates, Moody's does not expect any significant change in these metrics in 2013, in the absence of any exceptional event.

However, the negative outlook on Allianz SE's ratings reflects the possible risk of deterioration in Allianz's asset quality, capital adequacy, profitability and financial flexibility related to the risk of deterioration in the credit quality and in the economic environment of the sovereigns in which Allianz operates. Moody's says that this risk could arise, for example, if the credit quality of Spain (Baa3 negative outlook) and Italy (Baa2 negative outlook) deteriorates.

ALLIANZ' CREDIT POSITIONING

Moody's said that although it expects Allianz to be able to resist stress scenarios including severe deterioration in the credit quality of Spain and Italy, the rating agency believes that such scenarios would weaken the group significantly. Notably, Allianz generated around 10% of its revenues and around 15% of its insurance earnings in Italy in 2012. Allianz also has a significant exposure to Italian assets (more than 6% of investments in Italian sovereign and banking securities as of year-end 2012, i.e. more than 58% of shareholders' equity, before tax and policyholders' participation). In addition, Allianz has operations in Spain (3% of revenues) and holds a significant amount of Spanish assets (more than 2% of investments in Spanish sovereign and banking securities, mostly covered bonds). Therefore, the direct effects of such stress scenarios, added to the likely substantial indirect impacts, would have a significant impact on Allianz's balance sheet.

Moody's says that the probability of these stress scenarios remains very low. However, if the credit quality of Spain and/or Italy deteriorated, Moody's believes that this risk and the associated impacts on Allianz could lead to a lowering of Allianz SE's Aa3 IFSR.

Moody's also notes that Allianz also holds material levels of Italian assets in its German life operation (Allianz Lebensversicherungs, Aa2 IFSR, negative), although to a much lower extent than in its Italian subsidiary (Allianz S.p.A., A3 IFSR, negative). Similar to many of its German life insurance peers, Allianz Lebensversicherungs maintains a substantial level of guarantees relating to previously written business, with in-force guarantees on German business amounting to 3.1% at end-2012. Current investment income on the allocated asset portfolio is equivalent to 5% of the policyholders' reserves, leaving some buffer for lower future asset yields, and Allianz Lebensversicherungs also maintains a significant capital buffer in the form of EUR19 billion of RfB, part of which remains unallocated to policyholders. However, as part of a strategy to increase reinvestment yield and increase the asset duration of this operation, in 2012, Allianz Lebensversicherungs invested EUR2.3 billion in long-term Italian sovereign bonds with a maturity of 26 years. Moody's says that, because of the credit quality of these bonds, this strategy is weakening the German entity's asset quality and thereby exerting strain on Allianz Lebensversicherungs' credit profile.

WHAT COULD CHANGE THE RATING UP/DOWN

Downwards pressure would develop on Allianz SE's ratings if the creditworthiness of Spain or Italy deteriorated. A permanent rise in financial leverage beyond the mid-thirties, or a deterioration of the stand-alone credit fundamentals of main operating entities would also place pressures on Allianz SE's ratings.

Upwards rating momentum is unlikely in the short-term, given the negative outlook. However, Moody's might revise the outlook to stable if the macro-environment in some of Allianz's key markets shows a return to stability, as evidenced by a stabilisation in the rating levels and outlooks of Italy and Spain's government bonds.

FIREMAN'S FUND INSURANCE COMPANY

The affirmation of the A2 IFSR of Fireman's Fund Insurance Company (FFIC) and its rated US property-casualty affiliates reflects (1) FFIC's established competitive position in the US agribusiness, high-end homeowners' and certain commercial and specialty lines segments; (2) its strong investment and asset quality profile; and (3) benefits that inure to the US group with respect to Allianz's financial flexibility. FFIC receives benefits from implicit support through its strategic alignment with the parent's core businesses, as well as explicit support through an intercompany keep-well agreement and reinsurance cessions. These strengths are tempered significantly by Fireman's Fund's weak operating profitability -- as reflected in substantial operating losses in 2012. Together, these losses resulted in a more than 10% reduction in Fireman's Fund's statutory combined capitalisation in 2012, net of capital contributions from Allianz, both directly and under the intercompany keep-well agreement.

Given the parent company's implicit and explicit support, Moody's ascribes two notches of uplift to Fireman's Fund intrinsic credit profile. The negative outlook for Fireman's Fund's ratings reflects (1) Moody's view that Fireman's Fund's operating performance, risk-adjusted capitalisation and reserve adequacy will remain weak; and (2) the negative outlook on Allianz SE's senior unsecured debt rating. Favorable development in these areas would stabilise the rating but deterioration would likely result in a downgrade.

LIST OF RATINGS

The following ratings have been affirmed with a negative outlook:

Allianz SE -- insurance financial strength rating at Aa3;

Allianz SE -- senior unsecured debt rating at Aa3;

Allianz SE -- subordinated debt rating at A2(hyb);

Allianz SE -- junior subordinated debt rating at A3(hyb);

Allianz Finance II B.V. -- backed senior unsecured debt rating at Aa3;

Allianz Finance II B.V. -- backed subordinated debt rating at A2(hyb);

Allianz Finance II B.V. -- backed junior subordinated debt rating at A3(hyb);

Allianz France SA -- preference stock rating at Baa2(hyb);

Allianz Vie -- insurance financial strength rating at Aa3;

Allianz IARD -- insurance financial strength rating at Aa3;

Euler Hermes Deutschland AG -- insurance financial strength rating at Aa3;

Allianz S.p.A. -- insurance financial strength rating at A3.

The following ratings have been affirmed with no outlook:

Allianz SE -- commercial paper at P-1;

Allianz SE -- senior unsecured MTN rating at (P)Aa3;

Allianz SE -- subordinated MTN rating at (P)A2;

Allianz SE -- junior subordinated MTN rating at (P)A2;

Allianz Finance II B.V. -- backed senior unsecured MTN rating at (P)Aa3;

Allianz Finance II B.V. -- backed subordinated MTN rating at (P)A2;

Allianz Finance II B.V. -- backed junior subordinated MTN rating at (P)A2;

Allianz Finance Corporation -- backed commercial paper at P-1;

Euler Hermes Deutschland AG -- short-term insurance financial strength rating at P-1;

The following rating has been affirmed with a stable outlook:

Allianz Life Insurance Company of North America -- insurance financial strength rating at A2.

The following ratings have been affirmed and the outlook changed to negative from stable:

Fireman's Fund Insurance Co -- insurance financial strength rating at A2;

Fireman's Fund Ins. Co. of OH -- insurance financial strength rating at A2;

American Automobile Insurance Co. -- insurance financial strength rating at A2;

Associated Indemnity Corp. -- insurance financial strength rating at A2;

National Surety Corp. -- insurance financial strength rating at A2;

American Insurance Co. -- insurance financial strength rating at A2.

The methodologies used in this rating were Moody's Global Rating Methodology for Life Insurers published in May 2010, Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010, and Moody's Guidelines for Rating Insurance Hybrid Securities and Subordinated Debt published in January 2010. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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 analyst and the Moody's legal entity that has issued the ratings.

The person who approved Fireman's Fund Insurance Co., Fireman's Fund Ins. Co. of OH, American Automobile Insurance Co., Associated Indemnity Corp., National Surety Corp., American Insurance Co., Allianz Life Insurance Company of North America, credit ratings is Robert Riegel, Managing Director, Insurance, JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454

The person who approved Allianz SE, Allianz Finance II, Allianz France SA, Allianz Vie, Allianz IARD, Euler Hermes Deutschland AG, Allianz Finance Corporation, Allianz SpA is Simon Harris, Managing Director, Insurance, JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454

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.

Benjamin Serra
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Simon Harris
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Allianz SE's Aa3 senior debt rating with a negative outlook
No Related Data.
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