A.M. Best Downgrades Allianz Marine & Aviation (France); Removes From Under Review.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A+ (Superior) of Allianz Marine & Aviation (France) (AMAF) and has removed the rating from under review with negative implications. At the same time, an issuer credit rating (ICR) of "a-" has been assigned to the company. The outlook for both ratings is stable.

The rating actions reflect A.M. Best's re-evaluation of AMAF's stand-alone financial strength as well as the diminished rating enhancement following the reassessment of its strategic fit within Allianz Aktiengesellschaft (Allianz) (Germany). AMAF's ratings are based on a restoration of its risk-adjusted capitalisation, the recovery of its earnings and its reduced business profile. AMAF also benefits from common management with its sister company, Allianz Marine and Aviation Versicherungs (AMAV) (Germany).

AMAF's risk-adjusted capitalisation has been restored to a level commensurate with the current rating following significant underwriting losses prior to its purchase by Allianz in 2002. This was achieved by the cancellation of unprofitable business (such as its offshore account) and the transfer of business outside France to the UK branch of AMAV. Due to AMAF's heavy reliance on reinsurance for prior 2002 underwriting years, the company remains significantly exposed to reinsurers' credit risk. However, this is partially alleviated by guarantees backing reinsurance recoverables provided by Allianz companies. In addition, AMAF's reinsurance programme has been restructured to closer align gross and net exposure of the business underwritten by the company since 2002.

A.M. Best expects AMAF's underwriting results to stabilise in 2005 with a combined ratio of approximately 90%. This follows a return to technical profits at year-end 2003 as the company maintains its technical underwriting discipline, selectively underwriting risks such as yachts and general aviation. Overall earnings are likely to remain stable at approximately EUR 10 million (USD 17 million) at year end 2005.

AMAF's business profile reduced following the transfer of its London market portfolio to the AMAV branch in the UK. This has led to a considerable reduction in premiums over the last two years as AMAF concentrates on the French marine and aviation market, where it maintains a leading position, and continues to restructure its portfolio. A.M. Best expects gross written premiums to stabilise at 2004 levels as growth in selective lines offset the effects of its run-off portfolio.

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A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.