2nd UPDATE: Allianz Net Profit -46%; Confirms Operating Profit Goal
August 06 2010 - 8:50AM
Dow Jones News
Allianz SE (ALV.XE), Europe's largest insurer by gross premiums
and market capitalization, Friday reported a 46% slump in net
profit for the second quarter on lower income from own investments
and higher costs related to storms and floods.
It also said it is on track for an operating profit of about
EUR7.2 billion for 2010, give or take EUR500 million.
It reported improvements in property/casualty insurance and
asset management.
"Based on this very good result, we are confident that we can
achieve our outlook for operating profit for the entire year
[...]," Chief Executive Officer Michael Diekmann said.
Second-quarter net profit attributable to shareholders was
EUR1.02 billion, down from EUR1.87 billion in the same period a
year ago. The figure was below a forecast EUR1.15 billion in a Dow
Jones Newswires poll of 15 analysts.
The lower net profit is in line with the trend among other
European insurers, which generally posted lower net profits in the
quarter, as they had to take a number of hits from weather-disaster
claims and the U.S. oil spill.
Operating profit, which many investors consider to better
reflect a company's true performance from normal operations, rose
23% to EUR2.19 billion from EUR1.79 billion, substantially
outpacing the forecast EUR1.84 billion.
At 1209 GMT, Allianz shares were up EUR1.04, or 1.2%, at
EUR91.17.
Analysts generally issued upbeat comments about the earnings.
The results were strong, SEB analysts wrote, noting that the net
profit decline over the previous year shouldn't be overrated, as
the year-earlier quarter was characterized by an extremely high
investment result.
The earnings reflect a "strong operating performance," LBBW
analyst Robert Mazzuoli wrote, pointing to the better-than-forecast
operating profit, combined ratio and prospering asset management.
He called the outlook promising, with stable or growing margins in
life and asset management, and a turnaround of former loss-makers,
such as credit insurance and U.S. life.
Overall, Allianz, which competes with French Axa SA (CS.FR),
Swiss insurer Zurich Financial Services AG (ZURN.VX) among others,
is still benefiting from investor relief after the successful sale
of Dresdner Bank to Commerzbank AG (CBK.XE), completed in January
2009. The bank, which Allianz had bought in 2001, had burdened the
insurer's earnings for more than half a decade.
Analysts in general expected lower realized gains on stock
investments than in previous quarters, visible in a weaker
contribution from items known as non-operating items.
Allianz paid EUR255 million for claims caused by natural
disasters in the quarter, such as a tornado in Saxony, flooding in
Central and Eastern Europe and a hailstorm and flash floods in
France. Together with the EUR555 million in the first quarter, the
total burden from large natural-disaster claims amounts to around
EUR810 million to date, or 90% of Allianz's EUR900 million
full-year budget for such claims.
The higher disaster claims weighed somewhat on the combined
ratio in property/casualty insurance. Offsetting part of the claims
impact was the release of reserves made for potential claims that
were no longer needed. Improvements in credit insurance and
industrial insurance business also contributed to lower the
ratio.
The combined ratio was 96.3%, a beat of the forecast 97.4% and
below the year-ago figure of 98.9%. It was also better than many
peers.
The combined ratio is a widely watched measure of an insurer's
profitability in its core underwriting business, when stripping off
the investment result. The ratio compares how many cents an insurer
has to pay per euro premiums earned for claims and other costs; a
figure below 100% means the insurer made a profit in its
underwriting business, a figure above 100% means it made a
loss.
While European insurers generally got through the financial
crisis without too many blemishes, they have been hampered by
rising insurance claims and enhanced price competition in key areas
such as motor insurance business, where players are underscoring
each other. In addition, life insurers have been challenged by the
low interest-rate environment, which makes it more difficult to
meet pledges to policyholders. Market conditions in the industrial
business will remain challenging this year and next, Allianz said
at a recent investors day.
-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500;
ulrike.dauer@dowjones.com