ALLIANZ SE – RATINGS AFFIRMED
The affirmation of the ratings reflects Allianz's very strong market position and diversified business model, the reduced pressure from low interest rates on the Group's life business, very strong earnings which Moody's expects will withstand pressure from macroeconomic headwinds, as well as Allianz's very strong capitalization.
Allianz is one of the leading insurers globally, with leading positions in many of the property and casualty (P&C) and life markets it is operating in and the Group has taken steps to further strengthen its franchise in local markets via a number of transactions. Allianz's strong presence in asset management via PIMCO and Allianz Global Investors clearly differentiates the Group from most of its peers and further strengthens the diversification inherent to its business profile.
As a result, Allianz has built a very strong earnings track record, based on its proven ability to offset negative result drivers in part of its business with stronger performance in other parts. We expect Allianz will continue to report very strong operating profits over 2022-2024, despite some anticipated pressure from potentially lower economic growth, inflation and heightened financial market volatility.
Allianz's exposure to interest rate risk has reduced materially. Thanks to both proactive new business and back-book management, the share of unit-linked and protection products has increased and the average inforce guaranteed rate has fallen to 1.8% at year-end 2021 from 2.7% at year-end 2011 and the Group has been able to preserve investment margins over this period. In addition, Moody's believes guaranteed rate commitments are well covered for the foreseeable future thanks to very strong asset-liability management.
The Group's capitalization is very strong, as reflected in a Solvency II ratio of 199% at the end of the first quarter of 2022. However, Group Solvency has weakened somewhat recently due to the resolution of the Structured Alpha Funds issue, financial market volatility and high shareholder returns via dividends and share buybacks. Based on the Group's capital management policy, we expect Allianz will maintain its Solvency II ratio at levels of about 200% going forward.
Further, while the issue around the Structured Alpha Funds clearly highlights governance, risk management and compliance challenges associated with the complexity of the Group, Moody's believes that the financial implications have been digested and that Allianz has taken steps to further strengthen its control functions, reducing the likelihood of breaches occurring.
OUTLOOK CHANGED TO POSITIVE
The positive outlook reflects Moody's expectation that Allianz will be able to maintain very strong earnings, both in terms of levels and volatility. It also reflects Moody's expectation of continuously very strong capitalization, reflecting further improving capital efficiency and prudent management of asset risk exposures.
ALLIANZ S.P.A. - RATING AFFIRMED, OUTLOOK CHANGED TO POSITIVE
The affirmation of the IFSR at A3 reflects the strength of its business and financial profile and Moody's expectation that the insurer would be able to withstand Italian sovereign stress. It also reflects Moody's view that Allianz S.p.A. would be supported by the parent if and when required.
The change in the outlook to positive reflects the improving credit fundamentals of its parent.
ALLIANZ LIFE INSURANCE CO OF NORTH AMERICA - RATING AFFIRMED, OUTLOOK CHANGED TO POSITIVE
The affirmation of Allianz Life's A1 IFSR reflects the stability of its A2 standalone credit profile and the strong implicit support of Allianz SE. The change in the outlook to positive reflects the improving credit fundamentals of its parent.
The rating reflects Allianz Life's strong market position in the fixed indexed annuity (FIA) market, its sizeable variable annuity (VA) and growing hybrid VA business as well as strong profitability and good capital adequacy. The company has also been steadily growing its life insurance business. Offsetting these positive attributes are the risks inherent in the company's relatively complex product portfolio and the recent USD35 billion FIA reinsurance transaction which reduces a stable earnings stream for Allianz Life and the deployable capital was paid to its parent.
According to Moody's, Allianz SE's commitment and implicit support for Allianz Life remains strong. Allianz Life is an important contributor to the Group representing approximately 10% of total Allianz SE operating profits in 2021. The US operations share the Allianz brand name and the Group's global hedge platform is located at Allianz Life in Minneapolis.
EULER HERMES SA "ALLIANZ TRADE" - RATINGS AFFIRMED, OUTLOOK CHANGED TO POSITIVE
The change in outlook to positive on Euler Hermes reflects and mirrors the positive outlook on Allianz SE. Euler Hermes' Aa3 IFSR benefits from implicit and explicit support from its ultimate parent company. Moody's considers that the recent rebranding of the company into "Allianz Trade", which follows the minority buy out by Allianz in 2018, reinforces the commitment of Allianz to its credit insurance operations.
ALLIANZ LEBEN, ALLIANZ SACH - RATINGS AFFIRMED WITH STABLE OUTLOOK
The affirmation of the IFSRs at Aa2 reflects the confirmed strength of its business and financial profile, based in particular on the very strong market position of Allianz Deutschland's operating entities as well as very strong capitalization.
The stable outlook reflects Moody's expectation that Allianz Deutschland's operating entities will maintain the strength of their credit profile, based in particular on very strong capital adequacy, reflecting the reduction of product risk in the life business and prudent management of asset risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded in case of: (1) Maintaining current levels of franchise strength, (2) Group Solvency II ratio (excluding the impact of transitional measures on German business) sustainably in excess of 200%, (3) Return on Capital (ROC) (Moody's definition, with capital comprising shareholders' equity, free Rückstellung für Beitragsrückerstattung (RfB) reserve and hybrid capital) of at least 6% through the economic and underwriting cycle, and, (4) Maintaining current levels of earnings diversification .
Given the positive outlook, there is limited downward pressure but the outlook could change back to stable in case of: (1) Weakening of franchise strength, (2) Group Solvency II ratio (excluding the impact of transitional measures on German business) sustainably below 180%, (3) Expected deterioration in earnings leading to ROC (Moody's definition, with capital comprising shareholders' equity, free RfB reserve and hybrid capital) sustainably below 6%, and/or, (4) A further weakening in asset quality, as reflected in an increase of the high risk asset ratio (Moody's definition) to more than 200%. Further, the outlook would likely change to stable in case of any additional repercussions for Allianz's business or financial profile related to the Structured Alpha Funds issue.
ALLIANZ LEBEN, ALLIANZ SACH
There is very limited upside potential on the Aa2 IFSRs of Allianz Deutschland although significantly lowered asset and liability risk exposures, in particular of the life portfolio, while maintaining a very strong solvency position could place upwards pressure on the ratings.
Downward rating pressure on Allianz Deutschland's ratings could result from: (1) a consistent reduction in operating profitability, (2) deterioration in Allianz Deutschland's capitalisation (e.g., with a life entity's Solvency II ratio consistently below 250% without transitional measures), (3) a weakening in its asset quality, and/or, (4) a deterioration in the credit quality of Allianz SE.
Upwards pressure could develop on Allianz S.p.A.'s IFSR in case of an improvement in the credit quality of Italy, as evidenced by an upgrade of Italy's sovereign rating.
Downward rating pressure could result from: (1) A deterioration in the credit quality of Italy, (2) A change in the strategic importance of the Italian business within Allianz Group, (3) A material deterioration in this issuer's earnings profile, operating performance or capitalization levels.
The following factors could lead to an upward pressure on the ratings of Allianz Life: (1) upgrade of Allianz SE's ratings, (2) implementation of an explicit guarantee from Allianz SE in favor of Allianz Life, (3) ROC at Allianz Life consistently above 8%, and (4) Reduction of equity market sensitivity of earnings and capital and greater diversification with protection products.
Given the positive outlook, there is limited downward pressure but the outlook could change back to stable in case of: (1) Allianz SE's outlook changing back to stable, (2) National Association of Insurance Commissioners (NAIC) company action level (CAL) risk based capital (RBC) ratio at Allianz Life below 325%, or (3) Loss of distribution channels other than its core field marketing organization (FMO) channel, leaving the company effectively with a single distribution channel.
EULER HERMES SA "ALLIANZ TRADE"
Euler Hermes' ratings could be upgraded if Allianz SE's ratings were upgraded. The following factors could also lead to an improvement in Euler Hermes' standalone credit profile: (1) a meaningful diversification of Euler Hermes' business away from trade credit insurance and other correlated or cyclical risks, while maintaining a good profitability across the cycle, or (2) higher levels for actual and target capitalisation on a stand-alone basis, or (3) an increased diversification of its exposures, including through greater geographic and/or industry diversification.
Conversely, Euler Hermes' outlook could revert to stable if the outlook on Allianz SE's ratings were changed to stable, or if there was a change in the nature and extent of support expected from Allianz SE. In addition, the following factors could lead to negative pressure on Euler Hermes' standalone credit profile: (1) a material deterioration of earnings and operating performance resulting in a combined ratio in excess of 90%, over a sustained period of time, or (2) a material decline in capital adequacy, including Solvency II capital coverage decreasing below 150% with limited ability to improve capitalisation in the near term, or (3) a significant erosion of the company's market position and franchise.
The principal methodologies used in rating Allianz SE, Allianz Finance Corporation, Allianz Finance II B.V. and Allianz S.p.A. were Life Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74857 , and Property and Casualty Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74858 . The principal methodology used in rating Allianz Lebensversicherungs AG and Allianz Life Insurance Co of North America was Life Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74857 . The principal methodology used in rating Allianz Versicherungs-AG was Property and Casualty Insurers Methodology published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74858 . The principal methodology used in rating Euler Hermes SA "Allianz Trade" was Trade Credit Insurers Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/69014. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.