OLDWICK, N.J.--(BUSINESS WIRE)--April 16, 2003--A.M. Best Co. has downgraded the financial strength ratings to A (Excellent) from A+ (Superior) of Allianz Insurance Company (AIC) and its direct subsidiary, Allianz Underwriters Insurance Company, both of Burbank, CA. The rating outlook is stable for both companies.
These rating actions reflect A.M. Best's revised opinion relating to the treatment of AIC as a core subsidiary of Allianz A.G. (Allianz) (Munich, Germany). AIC's protracted period of poor underwriting performance and its diminished stand-alone risk-adjusted capital position necessitated this action, and resulted in A.M. Best's decision that AIC no longer meets the criteria for treatment as a core subsidiary and therefore no longer qualifies for the group rating of its ultimate parent.
Historically, AIC's underwriting performance has been hampered by periodic shock losses and competitive market conditions, which prevailed in the industrial risk segment in the late 1990s. Consequently, its current and historical pre-tax operating returns on both revenue and equity have consistently remained below acceptable levels. In response, AIC has exited most casualty business classes and maintained its focus on large U.S. industrial property exposures in keeping with its parent's global strategy to be a leader in risk management solutions for large industrial risks.
Partially offsetting these negative rating factors are the continued explicit parental support that AIC receives from Allianz, its solid business franchise and prospective earnings capabilities in its core industrial risk market. Allianz currently provides AIC explicit support in the form of 90% quota-share reinsurance from an off-shore affiliate and a $625 million Keep Well Agreement--directly from Allianz--to reimburse AIC for paid losses associated with the World Trade Center tragedy.
Moreover, the improvement in pricing and contract terms and conditions, which has taken hold in AIC's core businesses since September 11, should enable it to generate a suitable level of earnings to sustain its strategic importance within the Allianz group.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.