Standard & Poor's Ratings Services has placed Allianz Worldwide Care Ltd (AWC) on CreditWatch with negative implications.
Under the ratings criteria, sovereign risk is a key factor influencing the financial strength of insurers. As a result, the vast majority of insurers are rated no higher than the relevant sovereign local currency rating. Consequently, Standard & Poor's placed the ratings on this Dublin based insurer on a watch list.
Although owned by European giant Allianz, this international health insurer decided to locate in Ireland rather than the UK, although very little business comes from Ireland and a lot from the UK. Consequently it has been caught up in the dire economic situation in Ireland, which has a major banking crisis.
Standard & Poor's credit analyst Tatiana Grineva says, "Allianz Worldwide Care had invested approximately 52% of its investment portfolio in deposits with Irish banks at year-end 2009, which comprises more than 100% of shareholders' funds. We therefore consider that the Irish downgrade represents a weakening of the quality of its investment portfolio. The heightened sovereign risk also adversely affects our view of industry risk in Ireland."
The company adds, “The CreditWatch placement follows the rating action on Ireland and reflects the possibility that we may lower the ratings following our review of Allianz Worldwide Care's exposure to heightened sovereign-related risks. The ratings on Allianz Worldwide Care could also be lowered if we were to lower the ratings on Ireland further, but are likely to remain in the investment-grade category. We expect to update the CreditWatch placement following our review of the impact of the sovereign downgrade on Allianz Worldwide Care. We may not resolve the CreditWatch placement, however, until we have resolved that on the Irish sovereign rating. We expect to do this by early in the first quarter of
The insurer could be particularly hit by the rating as part of its business is with international insurance brokers and multinationals, which tend only to use insurers with the highest credit rating.