Nonlife Profit Surges For Allianz, Life Results Fell
May 16, 2012 by David Pilla
David Pilla |
Allianz SE said a strong earnings recovery in the first quarter added to management’s sense of optimism that its life and nonlife insurance businesses will do well following the impact of catastrophe losses of 2011 and a weak European economy.
Chief Financial Officer Oliver Bate said in a conference call that Allianz managed growth in most of its markets despite ongoing economic uncertainties related to the European debt crisis, low interest rates and volatile stock markets.
Net income for the quarter rose 57.9% to 1.45 billion euros (US$1.86 billion) as property/casualty insurance operating income improved 79.3% to 1.19 billion euros. Life and health insurance operating profit rose 17.7% to 826 million euros.
While property/casualty gross premiums written rose 3.8% to 14.8 billion euros, life/health gross premiums fell 4% to 13.7 billion euros.
Bate said first-quarter revenue, at 30.1 billion euros, was “the second-best we’ve ever had.”
Commenting on property/casualty revenue, Bate said the group saw revenue growth in all of its markets except Spain, where a severe recession contributed to a 3.8% revenue drop, and Central and Eastern Europe, down 4.5% as economic conditions hit the motor insurance business.
The property/casualty combined ratio improved to 96.2 from 101.3 a year earlier as natural catastrophe losses fell off. Bate said the group’s combined ratio was below 100 in all markets except the United States, where it stood at 105.7 as Allianz continues a restructuring program.
In the life/health segment, Bate said investment-related products continued to suffer declines due to economic conditions. Nearly all of Allianz’s markets showed revenue increases, except Italy, where revenue fell 36.6%; the Asia-Pacific region, down 20.3%; Spain, down 2.7%: and the United States, down a fraction.
“In Italy a significant part of our business is with banking partners, and in the first quarter banks had to secure their own liquidity before securing life insurance products,” said Bate. He added that the situation in Italy is expected to improve through the rest of the year as revenue “stabilizes.”
Negative developments in Asia-Pacific included the closing of a business in Japan. Bate said there are also “very difficult market conditions in Taiwan,” where Allianz is finding itself in increasing competition with banking products in investment-linked lines.
In Spain, Bate said a deep recession is discouraging buyers, and as with Taiwan, Allianz is finding increasing competition from banks, which he said “offer irrationally high interest rates” on savings products.
Investment results were good, given difficult financial markets, said Bate. Allianz recorded realized losses and impairments on investments of 7 million euros in the first quarter, compared with gains of 303 million euros a year earlier. Part of that was an increase in impairments on equities, mainly from the group’s holdings in Spain’sBanco Popular, said Bate.
He added that the portfolio saw realized losses on debt securities of 13 million euros, compared with gains of 112 million euros a year earlier, as Allianz shifted its holdings as part of a “de-risking’ strategy.
The group’s holdings in the sovereign debt of the peripheral European countries — Italy, Spain, Ireland, Portugal and Greece — amounted to 8.4% of Allianz’s debt portfolio in the first quarter. Bate said the group recorded gross unrealized losses of 1.16 billion euros on that debt.
Italy was the largest share of the peripheral group holdings for Allianz, at 7.2% of the total debt portfolio. Gross unrealized losses on Italy were 800 million euros.
“Allianz is doing its best to de-risk its portfolio away from this debt,” said Bate. “There is low liquidity in some of these holdings.
In its first-quarter report, Allianz said that with an “apparent lull in the European sovereign debt crisis,” there was an upswing in almost all major equity markets in the first quarter of 2012.”
But interest rates “did not follow a clear direction,” remaining low in Germany, increasing in the United States and falling in Italy and France. While first-quarter recovery lowered some sovereign and corporate credit spreads, Allianz noted that “the debt crisis is not over yet and we saw the lingering market impacts from 2011 still affecting the demand for investment-related life products.”
For the rest of 2012, Allianz is cautiously optimistic. The group said in its report that growth “will only accelerate in Europe if the European sovereign debt crisis does not escalate substantially. We still expect the debt crisis to abate slowly in the course of this year as EU summit decisions are implemented, structural reforms in over-indebted countries make progress, public finances continue to consolidate and [European Central Bank] measures prove effective in preventing a credit crunch.”
There are other potential risks that could affect the economic outlook, said Allianz, including a strong increase in oil prices following a disruption to global oil supplies due to geopolitical tensions; a renewed flare-up of the banking crisis or a hard landing of the Chinese economy.
Allianz SE currently has a Best’s Financial Strength Rating of A+ (Superior).
(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com)
Copyright: |
(c) 2012 A.M. Best Company, Inc. |
Source: |
A.M. Best Company, Inc. |
Wordcount: |
826 |