Rating Action: Moody's affirms Allianz SE ratings (Aa3 senior debt) with a stable outlook Global Credit Research - 10 Oct 2017 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 lowinterest 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 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 remains Stable Issuer: Allianz Lebensversicherungs AG..Affirmation:...Insurance Financial Strength Rating, affirmed Aa2...Outlook changed to Stable from Negative Issuer: Allianz Versicherungs-AG..Affirmation:...Insurance Financial Strength Rating, affirmed Aa2...Outlook changed to Stable from Negative Issuer: Allianz S.p.A...Affirmation:...Insurance Financial Strength Rating, affirmed A3...Outlook remains Negative Issuer: Allianz Life Insurance Company of North America
..Upgrade:...Insurance Financial Strength Rating, upgraded to A1 from A2...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 2017 Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY S PUBLICATIONS MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody s publications. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY S. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY S IN ANY FORM OR MANNER WHATSOEVER. Moody s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody s Corporation ( MCO ), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading Investor Relations Corporate Governance Director and Shareholder Affiliation Policy. Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act 2001. MOODY S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.
Additional terms for Japan only: Moody's Japan K.K. ( MJKK ) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.