OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has placed under review with negative implications and affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Allianz Life Insurance Company of North America (Minneapolis, MN) and its subsidiary, Allianz Life Insurance Company of New York (New York, NY). Concurrently, A.M. Best has placed under review with negative implications and affirmed the FSR of A (Excellent) and ICR of “a” of Allianz Life and Annuity Company (ALAC) (Minneapolis, MN). All three companies are collectively known as Allianz Life. The under review status is consistent with actions taken by A.M. Best Europe – Rating Services Limited on Allianz Life’s the ultimate parent, Allianz Societas Europaea (Allianz SE) (Germany), due to its sovereign credit exposure to several eurozone countries and A.M. Best’s concerns regarding the potential for a deteriorating economic environment in the European region. (Please see press release of December 14, 2011, titled “A.M. Best Downgrades Issuer Credit Ratings of Allianz Societas Europaea and Its Main Subsidiaries” for further information.) More, specifically, A.M. Best believes that a liquidity crunch or stress in the capital markets could potentially impact Allianz SE’s ability to provide capital to the U.S. operations, which it has historically supported.
Through the third quarter of 2011, Allianz Life has reported favorable operating results, steady revenue growth, stable investment returns and good expense management. Additionally, overall capitalization of the U.S. operations’ has moderately increased. However, statutory profitability recently has been dampened by higher reserve requirements on its legacy variable annuity block, which remains exposed to future equity market declines and low interest rates. Allianz Life’s business profile remains highly concentrated within fixed and variable annuities, although the organization is making strides to diversify into indexed universal life.
The ratings acknowledge Allianz Life’s meaningful exposure to below investment grade bonds relative to surplus, which include a roughly $1 billion collateralized debt obligation (CDO) portfolio acquired from an affiliate several years ago. To date the CDO experience has been reasonably consistent with purchase expectations. However, the CDO when coupled with above average exposure to financial securities could negatively impact the overall quality of U.S. regulatory capital.
Allianz Life continues to enjoy a leading U.S. market position within the fixed index annuity market, strong liquidity, an unlevered balance sheet and well-developed risk management practices. Risk management practices continue to be enhanced by additional Solvency II refinements, improvements to operational risk assessments and reduced derivative-related counterparty credit exposure. The lower reliance on derivative counterparty credit exposure is viewed favorably in light of potential risks with distressed European financial sectors and its potential impact (directly or indirectly) on global financial institutions. A.M. Best notes that Allianz Life’s investment portfolio has no European sovereign credit risk and has minimal exposure to financial institutions in troubled European countries.
Given the under review status, positive rating actions are unlikely in the near term. However, negative rating actions could occur if there was a considerable decline in absolute or risk-adjusted capital, contraction of global economic growth or significant deterioration in the financial strength of Allianz SE.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; “Assessing Country Risk”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.