OREANDA-NEWS. Fitch Ratings has affirmed Germany-based Allianz SE's Insurer Financial Strength (IFS) rating at 'AA' and Long-Term Issuer Default Rating (IDR) at 'AA-'. At the same time, the agency has affirmed Allianz's main subsidiaries' IFS ratings at 'AA'. The Outlooks are Stable. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

The affirmation reflects Allianz's strong technical profitability, very strong consolidated group capital position, broad diversification by geography and product, and solid business position in its key markets. In addition, the group's ratings also benefit from the sound credit quality of its investment mix. Partially offsetting these rating factors are the currently suppressed profitability at its asset management subsidiary, PIMCO, and the challenging medium-term outlook for some of Allianz's life markets.

Allianz scores "Very Strong" in Fitch's Prism factor-based capital model (Prism FBM) based on end-2015 data, which supports the rating. The group's core capitalisation remained strong at end-1H16 with shareholders' funds of EUR67.7bn (end-2015: EUR63.1bn) and Solvency II capitalisation of 186% (end-2015: 200%).

For 1H16, Allianz reported an operating result of EUR5.1bn (1H15: EUR5.7bn), reflecting a 10% decline from a very strong 1H15. The main driver was the 16% decline of the property/casualty operating profit, hit by higher natural catastrophe losses and influenced by a positive one-off in the 1H15 result. The combined ratio increased to 94.9% (94.1%). For 1H16, net profit attributable to shareholders declined by 15% to EUR3.3bn. In the current environment, Allianz benefits from its strong non-life business, despite the temporary set-back in 1H16. Unlike in life insurance, low investment yields are partly compensated for by higher underwriting discipline and better technical results.

During 2015 and 1H16 asset management continued to suffer from net asset outflows at PIMCO. However, third-party assets under management at end-1H16 were almost back to the level of end-2014, supported by inflows in other Allianz asset management units and favourable foreign-exchange movements. It seems that PIMCO's franchise has not been permanently damaged and that Allianz is likely to retain its strong position in asset management.

Allianz is one of the largest insurance groups in Europe. IFRS gross written premiums were EUR77bn and total assets stood at EUR849bn at end-2015. The group is active in both the non-life and life/health businesses as well as asset management and has a strong business position and franchise.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include a deterioration of Allianz's capital position, with its Prism FBM score falling below 'Very Strong' for a prolonged period of time or a sustained decline in profitability with a net return on equity below 9%.

An upgrade is viewed as unlikely by Fitch over the medium term, but upgrade triggers include a sustained significant increase in the Prism FBM score to 'Extremely Strong', a decline of the financial leverage ratio to below 15%, and a sustained strong improvement in profitability with a return on equity consistently above 15%.

FULL LIST OF RATING ACTIONS

Allianz SE: Long-Term IDR affirmed at 'AA-'; Outlook Stable

Allianz SE: IFS rating affirmed at 'AA'; Outlook Stable

Allianz core subsidiaries and their ratings:

Allianz Versicherungs-AG: IFS rating affirmed at 'AA'; Outlook Stable

Allianz Lebensversicherungs-AG: IFS rating affirmed at 'AA'; Outlook Stable

Allianz Private Krankenversicherungs-AG: IFS rating affirmed at 'AA'; Outlook Stable

Allianz Elementar Versicherungs-AG: IFS rating affirmed at 'AA'; Outlook Stable

Allianz Insurance Plc: IFS rating affirmed at 'AA'; Outlook Stable

Allianz Vie S. A.: IFS rating affirmed at 'AA'; Outlook Stable

Allianz IARD S. A.: IFS rating affirmed at 'AA'; Outlook Stable

Allianz Finance II B. V.

All outstanding senior notes affirmed at 'AA-'

All subordinated notes affirmed at 'A'

Allianz Finance's bonds are guaranteed by Allianz SE

Allianz SE

All outstanding senior notes affirmed at 'AA-'

All subordinated notes affirmed at 'A'