Allianz Risk Transfer AG - Allianz Global Corporate & Specialty

ART has developed a strong and recognizable franchise in the nontraditional alternative risk transfer segment, thanks
to its structuring expertise and reputation as a consistent source of financially strong risk capacity. We consider that
ART's adaptability, which stems from its size and structure, enables it to take advantage of short-term dislocations
between traditional markets and corporate customers' demand for individualized insurance solutions.
ART's competitive position benefits from access to the resources of the Allianz group. ART works closely with other
members of the group, mainly global industrial and specialty lines writer AGCS and a virtual reinsurance unit within
AZSE, called Allianz Re. In its Corporate Solutions segment, we expect ART to further participate in, and benefit from,
a "select account" initiative. In this combined initiative with AGCS, ART aims to better exploit the group's broad-based
expertise to enhance its service offering to key corporate clients, with benefits for both AGCS and ART. ART focuses
on multiyear captive solutions and tailored client solutions. Since the initiative started in 2007, the relative weight of
deal income from this business segment has increased, reaching about 39% in 2011 after an average 23% in
2004-2007.
In the ILM segment, which contributes about 42% of ART's deal income in 2011, ART acts in multiple functions along
the value chain of ILM transactions. This provides it with what we consider to be thorough market expertise in a field
where insurance and capital markets converge. Furthermore, ART coordinates business activities with Allianz Re and
contributes its expertise on investor demand (namely, the placement of Allianz's risks into capital markets, which is
ultimately executed by Allianz Re). A key focus is on products related to natural catastrophes.
Reinsurance Solutions contributes about 3% of ART's deal income in 2011, which is far below our expectation of about
18%. The decrease resulted from the high amount of natural catastrophes in 2011. ART underwrites, via brokers,
special coverage--similar to those in the Corporate Solutions segment--for other clients that traditional markets do not
cater for.
Over the years, ART has built direct relationships with both intermediaries and clients. This has enabled it to establish
a franchise in its own right, further reinforcing its competitive position. Moreover, ART benefits from its strong position
in a variety of distribution channels.
Prospective
We expect ART to continue to expand its market shares in traditional business, offering products that are in line with
AGCS. We also expect further integration of ART within AGCS as the company takes over responsibility for business
in some growth markets. ART is in our view likely to expand its nontraditional alternative risk transfer book as
appropriate transaction opportunities arise, but we believe growth will remain constrained, particularly in challenging
economic conditions. This is because alternative risk transfer solutions are often rather complex, perceived as
expensive, and require both clients and risk carriers to have considerable know-how.
Increasing competitive pressures in the corporate solutions and insurance and reinsurance segments will likely
dampen new business growth and create some margin pressure on new transactions. However, we think that the
growth of the sector, at least in terms of premium volume if not deal flow, will be spurred by episodes of short-term
dislocations in traditional markets and clients' increasing appetite for, and acceptance of, structured solutions. Over the
longer term, ART's continued successful collaboration with AGCS and other group companies in a maturing alternative
risk solutions market could further support our view of ART's strategic relevance within the Allianz group.
Allianz Risk Transfer AG
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