The rating action “reflects Allianzs deteriorated consolidated capitalization and weak earnings,” said the Oldwick, N.J.-based A.M. Best.

“Allianzs operating performance, although historically very strong, has deteriorated significantly over the past two years,” said Wolfgang Rief, credit analyst in S&Ps Frankfort, Germany office.

The 2002 loss of 1.2 billion euros was “weighed down by operating losses at Dresdner Bank AG of 2.0 billion euros ($2.1 billion); significant reserve strengthening at the U.S.-based Firemans Fund group of 762 million euros ($814.4 million); claims from floods in Central Europe amounting to 710 million euros ($758.8 million); and poor earnings in its industrial risk division, Allianz Global Risks, and at is France-based property-casualty operation, AGF,” S&P said in a statement.

A.M. Best said that Allianz continues to have “a superior business profile, but it remains challenged to significantly improve earnings in 2003, mainly due to continued depressed capital markets.”

Moodys Investors Service affirmed the current ratings of Allianzs various subsidiaries (which range from “A1″ to “Aa2″ to “Aa3,” depending on the entity.)

A Moodys agency London office statement said capitalization of the group, although relatively strong, had weakened through the year. “Allianzs shareholder equity has fallen substantially through 2002–from 31.7 billion euros ($33.9 billion) to 21.8 billion euros ($23.3 billion)–largely as a result of reduced levels of unrealized asset gains, coupled with the loss for the year.”

Allianz capital raising will “substantially improve” its capitalization position, but if it is unsuccessful, negative rating actions would likely arise, said Moodys.

Hannover Re suffered a downgrade–Moodys lowered the financial strength ratings of the reinsurer and its subsidiary E+S Ruckversicherungs to “Baa1″ from “A2.” ( Moodys rating is based solely on publicly available information.)

In part, Moodys said the rating action reflects Hannover Res high levels of “reinsurance recoverables, which stood at 6.3 billion euros ($6.7 billion) as of Sept. 30, 2002.”

Hannover Re retorted that its reinsurance recoverables are no significant risk for the company. Reinsurance recoverables are carefully analyzed with 89 percent of the recoverables due from companies rated by S&P with “A” or higher.

Moodys view “reflects their negative stance towards the entire insurance industry,” Hannover Re said, adding that the rating “diverges significantly” from other leading rating agencies.

Hannover Re noted Moodys rating is based on publicly available information, unlike those of S&P and A.M. Best, which have awarded the company “AA” and “A+”, respectively.

Christopher Hitchings, analyst with Commerzbank Securities in London, said Hannover Res balance sheet cant be judged “by the performance of net assets over the last two years relative to its peers. Clearly, there is a degree of security there, which is not being captured by [Moodys] determinations.”

On March 12, Paris-based reinsurer Scor saw Moodys downgrade its Scor's insurance financial strength rating to “Baa2″ from “Baa1.” SCORs downgrade reflects Moodys opinion that SCOR faces challenges implementing its 2002 Back on Track plan “including the strengthening of its risk management, internal controls, underwriting and corporate governance.”

On March 3, Scor said its 2003 renewals “fully satisfy the requirements of selectivity and profitability set in its Back on Track plan.” Scor has an “A-” financial strength rating with A.M. Best and S&P, and a “BBB” financial strength rating with Fitch, all of which are comprehensive ratings unlike Moodys.

In a separate rating action, Moodys announced last week that it placed the “Aa1″ financial strength ratings of Munich Re and its subsidiaries Hamburg-Mannheimer Versicherungs and Victoria Lebensversicherung on review for possible downgrade. The Aa2 rating of American Re-Insurance Corp. is also under review. Moodys said it had concerns regarding the uncertainties in Munich Res capitalization.

Reproduced from National Underwriter Edition, March 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.