OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has 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 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 outlook for all ratings is stable.
The rating affirmations reflect Allianz Life’s strategic position under its ultimate parent, Allianz Societas Europaea (Allianz SE) (Germany), its leading U.S. market position within the fixed index annuity market, strong liquidity, strengthened capital position, improved operating profile, unlevered balance sheet and well-developed risk management practices. Additionally, the ratings recognize Allianz SE’s global business profile as a leading financial services company with core business segments in life/health, property/casualty and financial services.
These strengths are partially offset by Allianz Life’s highly concentrated U.S. business profile within fixed and variable annuities (which accounts for roughly 95% of gross premiums), its uneven operating performance within variable annuities and the potential for additional asset impairments within its investment portfolio, although the recent trend has been positive. Additionally the ratings acknowledge the group’s meaningful exposure to below investment grade bonds relative to surplus, which include a collateralized debt obligation (CDO) portfolio acquired from an affiliate in 2009 at a cost of $1.35 billion. While U.S. regulatory capital levels have benefited from these CDO transactions, which were purchased at a sizeable discount (roughly 50%), the quality of capital in the U.S. life operations could be affected by the future economic performance of these particular securities. Nevertheless, A.M. Best notes that CDO investment experience, to date, has been reasonably consistent with purchase expectations.
Allianz Life’s operating profile continues to benefit from improved equity markets, gradually rising interest rates, operational efficiencies, reduced credit spreads and lower levels of asset impairments. A.M. Best believes Allianz Life is well positioned to benefit from a modestly rising interest rate environment with its portfolio of fixed annuities. Furthermore, the company pursues a proactive approach toward the mitigation of potential regulatory risks that could impact its sales process and products.
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 and Health Insurers”; “Assessing Country Risk”; “A.M. Best’s Liquidity Model for U.S. Life Insurers”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.
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