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Rating Action:

Moody's assigns a Baa1 IFSR to Allianz Sigorta, the main Turkish subsidiary of Allianz SE, with a negative outlook

 The document has been translated in other languages

27 Apr 2015

London, 27 April 2015 -- Moody's Investors Service has today assigned a Baa1 insurance financial strength rating (IFSR) and an Aa2.tr national scale insurance financial strength rating (NSR) to Allianz Sigorta A.S., the main Turkish subsidiary of Allianz SE (Aa3 IFSR, stable). The ratings outlook is negative, which is aligned with the outlook on Turkey's sovereign rating.

RATINGS RATIONALE

INSURANCE FINANCIAL STRENGTH RATING

Moody's says that the Baa1 IFSR of Allianz Sigorta reflects the good stand-alone financial fundamentals of Allianz's Turkish operations as well as the support stemming from its parent company, Allianz SE. Group support is one of Moody's key factors supporting the IFSR above the Turkish sovereign rating (Baa3, negative). Moody's views Turkey as a key growth market in terms of premiums and operating profits for Allianz SE, whilst Allianz SE provides reinsurance protection and technical expertise to its Turkish subsidiaries. Furthermore, the acquisition of the insurance operations of Yapi ve Kredi Bankasi AS (YKB) announced in 2013, reflect the Group's continued commitment to the region.

Allianz Sigorta is the main non-life operating entity of Allianz SE as well as the 80% shareholder of Allianz Yasam ve Emeklilik A.S., the main life and pension operating entity of Allianz SE in Turkey. Allianz's other Turkish life & pensions entity, Allianz Hayat ve Emeklilik A.S., is a sister company to Allianz Sigorta. Given this ownership structure and the fact that the Turkish operations have a shared senior management team, Moody's considers Allianz's Turkish businesses as a single operating unit (Allianz Turkey).

According to Moody's, Allianz Turkey's stand-alone credit profile is supported by its leading position in the Turkish insurance market, good product diversification between non-life and life & pensions (which represented 64% and 36% respectively of pro-forma shareholders' equity as at YE2013), and very good operating profitability. Allianz's Turkish business also continues to show strong organic growth across all segments with an overall growth rate of 19% in 2013. However, these strengths are somewhat offset by the meaningful direct exposure to Turkish sovereign risk in terms of both the investment portfolio and business profile, the operating risks inherent in the increasingly competitive Turkish insurance market and high reserving risk in the non-life operation.

Commenting further on profitability, Moody's added that Allianz Turkey's performance over the past 4 years has been very good and favourable compared to the Turkish market, particularly within the non-life segment. Allianz Sigorta, the company, reported an 88% increase in its net income to TL 113 million in 2013 and an excellent 5 year average return on capital (ROC) of 12%. As a result of the acquisition of YKB's insurance operations, Allianz Turkey's net income is expected to more than double, with an excellent double digit ROC. Moody's also expects that Allianz Turkey will continue to grow profitably, albeit against a backdrop of intense price competition, particularly in the non-life market.

More negatively, Moody's notes that Allianz Turkey's other key credit fundamentals (i.e. asset quality, capitalisation, liquidity and financial flexibility) are correlated with -- and thus linked to -- the economic and market conditions in Turkey, where it is domiciled and has all its operations. In terms of asset quality, Turkish government bonds represented around 95% (TL 915 million) of Allianz Sigorta's total fixed-income portfolio as at YE2013, or 1.7x of shareholders' equity, and 100% of its premiums were sourced in Turkey. Therefore, Moody's considers Allianz Turkey's stand-alone credit profile to be constrained by the credit quality of the Turkish sovereign.

Moody's also says that the level of reserving risk inherent in the non-life portfolio is significant as reflected in the prior year reserve deterioration, representing 9.3% of opening reserves at YE2013 (on a 5 year weighted average basis). Whilst recognising that reserve deterioration has been a feature across the Turkish market, predominantly driven by adverse motor bodily injury claim trends, Moody's expect the assessment of motor reserves to remain challenging given the high volatility of claims frequencies observed in Turkey in recent years and the continued high level of uncertainty in terms of reporting claims behaviour.

NATIONAL SCALE RATING

Allianz Sigorta's Aa2.tr NSR reflects Allianz Turkey's creditworthiness within the Turkish credit environment, taking into account the insurer's adequate intrinsic financial strength and the very high likelihood of support from its highly rated parent company, Allianz SE. The NSR is directly mapped from Allianz Sigorta's IFSR.

OUTLOOK

The negative outlook on Allianz Sigorta's ratings, mirrors the negative outlook on Turkey's government bond rating and reflects the uncertainties around the economic and financial environment in Turkey, the insurer's domestic market.

Any further downgrade of Turkey would likely lead to a downgrade of Allianz Sigorta's ratings due to various linkages. These linkages include the reduced quality of the group's investment portfolio and Moody's view that the financial and economic environment in Turkey could constrain profitability should conditions deteriorate significantly.

WHAT COULD CHANGE THE RATING UP/DOWN

With regard to rating drivers going forward, Moody's said that currently there is no upward pressure on the IFSR of Allianz Sigorta, given the negative outlook. However, Moody's mentioned that the following factors could place upward pressure on the rating: (i) an improvement in the credit quality of the Turkish sovereign; or (2) a higher level of explicit support provided to the company by Allianz SE, such as a guarantee.

Conversely, negative rating pressure could arise from: (i) a deterioration in the credit quality of Turkey; or (ii) a lower level of explicit or implicit support provided to the company by Allianz SE; or (iii) a material deterioration in Allianz Turkey's earnings, operating performance or capitalisation levels.

The following rating has been assigned to Allianz Sigorta S.A. with a negative outlook:

Insurance Financial Strength Rating at Baa1

National Scale Insurance Financial Strength Rating at Aa2.tr

PRINCIPAL METHODOLOGIES

The methodologies used in these rating were Global Property and Casualty Insurers published in August 2014, and Global Life Insurers published in August 2014. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Helena Pavicic
Analyst
Financial Institutions Group
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

Antonello Aquino
Associate Managing Director
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 assigns a Baa1 IFSR to Allianz Sigorta, the main Turkish subsidiary of Allianz SE, with a negative outlook
No Related Data.
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