A.M. Best Downgrades Issuer Credit Ratings of Allianz Global Corporate & Specialty North America and Members [Health & Beauty Close – Up]

A.M. Best Company has affirmed the financial strength rating of A+ (Superior) and downgraded the issuer credit ratings (ICR) to "aa- " from "aa" of Allianz Global Corporate & Specialty North America (AGCS NA), which includes Allianz Global Risk US Insurance Company, Allianz Underwriters Insurance Company (both of Burbank, California) and AGCS Marine Insurance Company (Chicago, Illinois).

Additionally, A.M. Best has downgraded the ICR to "a-" from "a" of Allianz of America (Delaware). All ratings have been placed under review with negative implications.

These rating actions follow the downgrade of the ICR and the placing of the ratings under review with negative implications of the group's parent company, Allianz Societas Europaea (Allianz SE). The actions on Allianz SE's ratings resulted from the company's exposure to investments in several peripheral eurozone economies, Italy in particular, as well as its investment exposure to eurozone banks.

A.M. Best has been actively monitoring the continued deterioration of the sovereign creditworthiness of several eurozone countries and the negative economic outlook for the region and released reports on the insurance industry exposure to these events in September and November of this year. The perceived strain on the economies of these countries - most notably Italy and Spain - and companies operating within their borders is growing with very little evidence of a solution being formulated to address near-term concerns. The rationale for taking rating action at this point is attributable to the current level of credit and liquidity risk for insurers operating within these countries, including Allianz SE.

The ratings for AGCS NA and Allianz SE will remain under review with negative implications while A.M. Best examines their companies' exposure to a prolonged adverse economic environment within the eurozone. Of particular concern to A.M. Best is the exposure to Italy and Spain's sovereign bonds and the potential for contagion into other asset classes, particularly holdings of European bank securities. In addition, A.M. Best will assess the likely impact of a prolonged financial crisis and recessionary environment on these carriers' market position and ongoing business operations.

Additionally, the ratings reflect A.M. Best's view that AGCS NA is a strategic cornerstone of the group's global industrial and specialty lines business, fully integrated into the operating processes of AGCS Global, and as such, has the explicit support of the group's parent company, Allianz SE.

The ratings also consider AGCS NA's sound risk-adjusted capitalization, strong business franchise and solid underwriting and operating performance in recent years.

Offsetting these positive rating factors are AGCS NA's historically poor underwriting performance and the inherent risk associated with the recent growth in premium production. The outlook reflects ongoing support from Allianz SE and A.M. Best's expectation for continued solid operating results over the near term.

Upward rating actions are unlikely at this point.

Negative rating actions could occur if there were a worsening of risk-adjusted capitalization at Allianz SE tied to investment losses or a deterioration of the operating environment in key territories. Additionally, negative rating action could be taken if AGCS NA is deemed not sufficiently strategically important to the global operations of Allianz SE to receive full rating enhancement.

A.M. Best Company is one of the world's oldest insurance ratings and information sources.

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