S&P Affirms Allianz Russia Ratings; Revises Outlook to Negative

Standard & Poor’s Ratings Services has revised its outlook on Allianz Insurance JSC (Allianz Russia) to negative from stable and affirmed its ‘BBB-‘ long-term counterparty credit and insurer financial strength ratings on the Moscow-based insurer.

S&P also affirmed the ‘ruAA+’ Russia national scale rating.

“The outlook revision reflects the temporary deterioration of Allianz Russia’s capital position and our perception that the company might fail to restore its capital adequacy to a ‘BBB’ level within the next 24 months (as measured by our risk-based capital model),” explained credit analyst Victor Nikolskiy.

S&P said the ratings “reflect our opinion of Allianz Russia’s strategic importance to Allianz SE (AA/Stable/A-1+), its adequate net combined ratios supported by strong gross results, and good quality, conservative investment portfolio.

“In our view, these strengths are partly offset by high industry risks associated with operating in the Russian Federation (foreign currency BBB/Negative/A-3; local currency BBB+/Negative/A-2; Russia national scale ‘ruAAA’), a vulnerable competitive position, and temporary deterioration in its capital adequacy and internal financial flexibility.”

S&P added that its long-term counterparty credit and insurer financial strength ratings on Allianz Russia “incorporate a three-notch uplift from its stand-alone credit profile, reflecting its continuing importance to Allianz SE in an area of key growth for the parent, as well as continued support from the broader Allianz group.”

In addition the rating agency noted that the “country risk associated with operating in Russia continues to be high and is a significant negative influence on the ratings. We also regard the company’s relatively modest position in the market for the commercial risks as a negative factor.”

S&P further explained that the “negative outlook reflects our view that Allianz Russia may fail to restore its capital adequacy to a ‘BBB’ level according to our risk-based capital model within the next 24 months.”

“We would consider negative rating actions if capital does not improve in the medium term or if we recognize significant and sustained deterioration in earnings, competitive position, or the quality of the investment portfolio,” Nikolskiy added.

S&P noted that if the “capital level does not improve and the Allianz group does not support it, we would consider revising our view on the strategic importance of Allianz Russia to the group. We would consider revising the outlook to stable if the company’s capital adequacy improves to a level commensurate with the rating.”

Source: Standard & Poor’s – www.standardandpoors.com