Fitch Ratings has affirmed Germany-based Allianz SE's Insurer Financial Strength (IFS) Rating at 'AA' (Very Strong) 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 below.

The affirmation reflects Allianz's most favourable company profile and a very strong consolidated capital position. The ratings also benefit from the group's strong technical profitability and very strong asset/liability management.

Key Rating Drivers

Very Strong Company Profile: Allianz has one of the strongest franchises in the global insurance industry. It is the largest insurance company in Germany by market share, is among the leading insurers in the eurozone, and has a strong presence in major insurance markets worldwide. Allianz is also one of the largest asset managers in the world through its units Allianz Global Investors GmbH (AGI) and PIMCO.

Well-Diversified Insurance Portfolio: Allianz is well diversified in business lines and geographical exposure, and through distribution channels. Along with its asset-management activities, Allianz serves all product lines for old-age provisioning and health insurance, as well as all major property and casualty insurance segments. Its strong non-life franchise with leading market shares in Europe is a source of relative outperformance compared with peers.

'Very Strong' Capitalisation: Allianz scored 'Very Strong' in Fitch's Prism Factor-Based Capital Model (Prism FBM), based on end-2021 data (unchanged). Reported regulatory solvency ratios are also very strong with 209% at end-2021 (2020: 207%). The financial leverage ratio (FLR), as calculated by Fitch, remained very strong at 22% at end-2021 (2020: 23%). We expect capitalisation and financial leverage to remain very strong.

Very Strong Underlying Profitability: We expect operating performance to remain very strong in 2022, despite the high-inflation environment and financial market uncertainty related to the war in Ukraine, while non-operating expenses continue to burden net income. Allianz's earnings have consistently been very strong and stable.

In 2021, operating profit rose to EUR13.4 billion from EUR10.8 billion in 2020, which had been burdened by pandemic-related claims. The Fitch-calculated combined ratio improved to 94.7% (2020: 96.9%). Life/health also contributed strongly to operating results, supported by higher unit-linked management fees and better technical margins. However, net income declined to EUR6.6 billion in 2021 (2020: EUR6.8 billion) and net income return on equity (ROE) to 8.2% (2020: 8.8%). The main reason was the provision of EUR3.7 billion before tax for the AGI US Structured Alpha matter.

Asset Management Stable Contributor: Allianz's asset management division reported a 22% increase in operating profit to EUR3.5 billion for 2021 (2020: EUR2.9 billion), mainly driven by higher average third-party assets under management (AuM) and supported by strong performance fees. Average AuM increased by EUR161 billion to EUR1,826 billion in 2021. While the industry's profitability remains under pressure, Allianz expects to achieve above-average growth, based on its focus on alternative assets as well as traditional public-equity and fixed-income products.

Very Strong Asset/Liability Management: Fitch considers Allianz's asset/liability management to be very strong. Asset and liability durations have very limited mismatch at group level. Allianz's liquidity position is also strong.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

A sustained, significant increase in the Prism FBM score to 'Extremely Strong'.

An improvement in the FLR to below 15%.

A sharp and sustained improvement in profitability with ROE consistently above 15%.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A deterioration of Allianz's capital position, with its Prism FBM score falling below 'Very Strong' for a prolonged period.

A sustained decline in profitability, with a net ROE below 9%.

A deterioration of the FLR to more than 28%.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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