Profit Drops at Allianz Group - Analyst Blog

The leading German property-casualty and life insurer, Allianz Group reported its second quarter 2010 earnings of $2.91 (€2.21) per share, a substantial decrease of 47% from $5.44 (€4.13) reported in second quarter 2009. Net income to shareholders totaled $1.33 (€1.01) billion, down 45.6% from $2.50 (€1.87) billion in the prior-year quarter. Low realized gains in the quarter were culpable for offsetting double-digit revenues and operating profit improvements.

Total revenue in the quarter under review was $33.5 (€25.4) billion, up 14.4% from $29.2 (€22.2) billion in the second quarter of 2009. Internal growth in revenues was 10.8% in the quarter.

Operating profit increased 22.7% year over year to $2.89 (€2.2) billion in the quarter.

Segment Results

Property-Casualty: Gross premiums written increased 4.5% year over year to $13.2 (€10.0) billion in the quarter. Adjusted for currency effects, premiums increased 0.5% over the prior-year quarter.

Solid underwriting results, coupled with a higher investment income, led to a 28.2% year-over-year increase in operating profit.  Operating profit was $1.4 (€1.1) billion compared with $1,178.8 (€895) million in the prior-year quarter.

Combined ratio in the quarter was 96.3%, an improvement of 230 basis points from 98.9% in the prior-year quarter and 410 basis points from 100.4% in the preceding quarter. Claims from natural catastrophes were $335.9 (€255) million in the quarter.

Life/Health: Revenues in the quarter increased 20% year over year to $18.6 (€14.1) billion. This compares favorably with $15.5 (€11.8) billion in the second quarter of 2009.  Internal growth was 16.2%. Solid demand for investment-oriented products such as unit-linked insurance and products with guarantees, as well as traditional life insurance, especially in Germany, Italy, France, the US and growth markets in Asia and Central and Eastern Europe, led to the improvement.

Operating profit of $939 (€713) million was a decline of 28% year over year from $1,303 (€990) million in the prior-year quarter. 

Asset Management:  Operating profit in the quarter was $679.6 (€516) million, a whopping 110% increase from $324 (€246) million in second quarter 2009. The improvement was largely driven by an increase in net fee and commission income.

Cost-to-income ratio improved to 56.6% from 68.5% in the prior-year quarter, primarily driven by a strong growth in performance fees.

Third-party assets under management were $1.5 (€1.1) trillion as of June 30, 201, surpassing the historic high of $1.3 (€1.0) trillion at March 2010 end.

Corporate and Other segment: Revenues from banking operations (reported in “Corporate and Other” segment) were $181 (€138) million. The Allianz Bank in Germany, launched in June 2009, contributed much to the result.

Operating loss of $204 (€155) million was less than the loss of $412 (€313) million in the prior-year quarter.

Capital Position

As of June 30, 2010, the solvency ratio was 170% compared with 168% as of March 31, 2010.

Shareholders' equity at second-quarter end was $57.7 (€43.8) billion, up 0.7% from $57.3 (€43.5) billion at the end of first quarter 2010.

American insurer XL Group (XL) reported its second quarter 2010 operating income of $242.6 million or 71 cents per share, beating the Zacks Consensus Estimate of 64 cents.  Results were below second quarter 2009 operating earnings of $242.6 million or 85 cents. The year-over-year decline was due to a lower net investment income as well as a previously announced charge to fully extinguish and terminate all of the guarantees issued to European Investment Bank (EIB).

Another American insurer, Prudential Financial Inc. (PRU) reported second quarter operating income of $1.51 per share, which was ahead of the Zacks Consensus Estimate of $1.31 having benefited from strong annuity sales, higher investment income and asset management fees. Earnings were, however, down from $1.87 per share in the year-ago quarter.

Full-Year 2010 Guidance

Based on solid first-half 2010 results, management expects operating profit to be approximately $9.5 (€7.2) billion, with a fluctuation range of plus or minus $658 (€500) million.

Prudent underwriting practices and claims management as well as strong performances across the segments and healthy demand for investment-oriented products will help the company to deliver solid results going forward. However, a low interest rate environment might weigh on the performance.

 
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