Housing Bubble Deflation Negatively Impacting Material Industries

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The ripple effects from the housing slowdown are reaching across a wide variety of economic and industry sectors, according to analysis from global accounts receivable management service provider Euler Hermes ACI.

The ripple effects from the housing slowdown are reaching across a wide variety of economic and industry sectors, according to analysis from global accounts receivable management service provider Euler Hermes ACI.

In the latest Euler Hermes ACI U.S. Industry Outlook publication, two of the industry sectors that are spotlighted -- lumber and chemicals -- are showing "signs of weakness," said Euler Hermes ACI Risk VP Tony Clary. "The chemicals outlook continues to be tied directly to the strength of the U.S. economy, while the lumber industry is -- of course -- closely related to the housing market," he said. "With a forecasted economic slowdown and an already slowing housing market, both of these industry sectors show an increased amount of risk."

In 2006, the chemical sector saw stability and improved operating margins in both commodity and specialty chemicals as the U.S. economy maintained its growth. Good pricing and easing energy costs in the latter part of the year allowed momentum to continue, but end-user markets -- particularly housing -- saw a significant reversal in activity, which has impacted demand. The outlook for 2007 now reflects the current state of the U.S. economy. "The uncertainty over the housing market and a decline in industrial and manufacturing activity are likely to create a much more difficult environment," said Clary.

Meanwhile, 2006 saw a marked change in lumber industry conditions, as the quickly declining housing market caused lumber prices to slump, a condition that is continuing as the market continues to falter in 2007. "There are mixed opinions regarding how long it will take for the housing market to recover, with opinions ranging from the market already hitting bottom to a 24-month period before recovery," Clary stated.

Euler Hermes ACI Chief Economist Dan North referred to the housing market as "decimated" and tied the slowdown to the actions of the U.S. Federal Reserve. "Indeed, when the Fed raised interest rates for the last time in June 2006, the housing market bubble burst; housing prices peaked the very next month," he said.

The economic effects of the burst housing bubble appear to be reaching far and wide throughout the economy. "As of January 2007, asset value equivalent to 15% of GDP has disappeared from the housing market," said North. "This fall in value will not only cause mortgage defaults to rise and credit conditions to deteriorate, it will destroy some of the equity built up in the past few years which has been used to fuel consumer spending. As the consumer accounts for two-thirds of all economic activity, a faltering consumer will surely lead to a faltering economy. On a more intuitive level, asset value equivalent to 15% of GDP can not simply disappear without having a significant impact on the economy."

North said the time period for a housing market recovery could be a long one. "Before the bubble burst, year over year home prices had fallen only five times in the 451 months that prices have been recorded, and they had only once fallen for two consecutive months. The six month drop in housing prices from August 2006 to January 2007 is unprecedented, and four of the past six drops are the largest ever. Certainly this market has suffered a severe blow, and it seems unlikely that a meaningful recovery is imminent," he commented.

In the face of today's changing economic climate, recognizing and managing future risks becomes a priority for business leaders. Euler Hermes ACI accounts receivable management services can provide a business with products and services to protect cash flow. For more information, visit http://www.eulerhermes.com/usa.

Euler Hermes ACI is North America's oldest and largest provider of trade credit insurance and accounts receivable management solutions and is the US subsidiary of the Euler Hermes Group. Headquartered in Owings Mills, MD, the company protects and insures more than $125 billion in US trade transactions annually. Additionally, Euler Hermes ACI provides a suite of receivables management services that includes commercial third party collections, receivables management outsourcing, and international collections. For more information, visit http://www.eulerhermes.com/usa.

Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,500 employees in 49 countries, Euler Hermes offers a complete range of services for the management of customer receivables and posted a consolidated turnover of 2.01 billion euros in 2006.

Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor's rates the group and its principal credit insurance subsidiaries AA-.

Press Contact:

Rick Ostopowicz

Euler Hermes ACI Public Relations and Communications Specialist

Phone: (410) 753-0652

These assessments are, as always, subject to the disclaimer provided below.

Cautionary Note Regarding Forward-Looking Statements: Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words 'may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue' and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz SE's core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The matters discussed herein may also involve risks and uncertainties described from time to time in Allianz SE's filings with the U.S. Securities and Exchange Commission. The Group assumes no obligation to update any forward-looking information contained herein.

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