Allianz Risk Transfer AG - Allianz Global Corporate & Specialty

ART's competitive position is strong, in our view, and management is a positive factor for the rating. The team's
success to date is a reflection of its small, manageable size and adherence to strong underwriting discipline, coupled
with access to the resources of one of the world's largest insurance providers. The termination of ART's
alternative-assets business in 2009 underlines ART's strategic refocus on risks related to insurance and reinsurance,
which supports other initiatives of the Allianz group. We expect ART to continue to increase its share of traditional
business and pursue its opportunistic approach in the alternative risk transfer segment, backed by AZSE's increasingly
cohesive approach to managing relationships with key corporate and reinsurance clients.
We view ART's operating performance as strong. ART has made a positive contribution in each of its 15 years in
operation, providing a consistent stream of earnings to the Allianz group. ART has regularly been a top-quartile
performer among Allianz's subsidiaries according to economic value-added analysis (EVA), which is one of AZSE's
main metrics for appraising the performance of its subsidiaries. We expect ART's focus on maintaining the diversity
within its risk portfolio to continue to underpin a sophisticated approach to risk management. This, in our view, should
enable ART to report sustainable net income of more than €40 million on its nontraditional business in 2012 and
continue to exceed its parent's EVA targets. However, rising competitive pressures could dampen margins on new
transactions.
We regard ART's capitalization as strong and we expect it to remain at least strong because of its very strong capital
adequacy as measured by our risk-based capital model. We believe that the company needs to operate with capital
that is at least strong to maintain a buffer against potential earnings volatility and finance further business expansion.
In addition, we believe that AZSE is committed to maintaining ART's capitalization at a level commensurate with our
rating parameters.
Despite what we view as ART's robust risk management framework and consistent earnings track record, the
alternative nature of the deals it underwrites within the nontraditional segment means that the risk of earnings
volatility remains. This can stem from asset or liability exposures, until ART has fully shifted its remaining alternative
assets to lower-risk classes and reduced the relative weight of alternative-asset exposures in the investment portfolio.
ART's nontraditional portfolio is also exposed to structured credit and long-tail casualty lines (for the latter there is a
long time frame between claims-causing incidents and claim settlements). As a result, the continuation of a challenging
economic environment could hamper the earnings of these lines. Nevertheless, we believe that ART's stringent
approach to setting risk limits, the diversity within its nontraditional portfolio, and its sound record partly mitigate the
downside risk to earnings.
Earnings volatility can also arise from insurance risk in the traditional portfolios or from foreign exchange effects in
ART AG's profit and loss account. This is because most of ART AG's transactions are either structured in U.S. dollars
or euros, while it reports publicly in Swiss franc.
Outlook
Allianz Risk Transfer AG
The negative outlook on ART reflects that on its ultimate parent AZSE. We expect that ART, in view of its strategic
importance to AZSE, will continue to benefit from financial and liquidity support from AZSE and its intermediate
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