Allianz disappointed investors on Friday as its property/ casualty insurance business missed expectations even as improving financial markets helped group net profit rise by a fifth in the second quarter.
Net profit at Europe’s biggest insurer swelled to 1.9 billion euros ($2.7 billion) from 1.5 billion in the year-earlier quarter, above the 1.6 billion euro average in a Reuters poll of analysts.
“Allianz is prepared for what we perceive as ‘the new normal’, an ongoing challenging market environment with structurally lower returns,” Chief Executive Michael Diekmann said in a statement.
Diekmann said Allianz was strongly capitalized and able to withstand market shocks, echoing comments from French rival AXA earlier this week.
“We are well diversified from both a regional and business unit point of view, and are thus able to benefit from a market upturn,” Diekmann said.
Analysts concentrated on worse-than-expected performance at its main money spinner, property and casualty insurance, where quarterly operating profit nearly halved to 895 million euros, hit by lower income on investments and underwriting.
The property/ casualty combined ratio, which measures costs and claims as a percentage of premiums, rose to 98.9 percent from 93.5 percent in the year-earlier quarter, showing profitability declined.
“The most important figure in our opinion is the somewhat disappointing combined ratio,” said DZ Bank analyst Thorsten Wenzel in a research note, saying that he was reviewing his “buy” recommendation on the stock.
Allianz’s fortunes contrasted with those of some of its main European rivals, with Zurich Financial Services, Aviva, and RSA all beating first-half profit forecasts on Thursday after relatively light claims loads.
Analysts said high-tech pattern-recognition technology had helped alert insurers to potentially fraudulent claims.
BETTER RETURNS IN H2
Allianz forecast that the combined ratio would improve in the second half thanks to rising renewal rates and new business. Chief Financial Officer Helmut Perlet told a call with journalists that a 97 percent ratio this year was within reach.
Allianz shares fell 3.7 percent to 72.74 euros by 0907 GMT, the biggest decliner among German blue chips and lagging a 1.8 percent decline in the DJ Stoxx index of European insurance shares.
Like other insurance players, Allianz benefitted from rebounding financial markets in the second quarter.
Writedowns on investments such as debt and equities fell sharply, totalling 144 million euros compared with 506 million in the second quarter of last year. Realised gains fell less than 10 percent.
In addition, Allianz reported improvements in life and health insurance, where investment results and a 10 percent rise in premium income helped boost operating profit in the segment by 40 percent.
Its stock has fallen by 2 percent from the start of the year, lagging a 2.5 percent rise the DJ Stoxx insurance index.
According to StarMine, which weights analysts’ forecasts according to their track record, Allianz trades at 7.6 times 12-month forward earnings, making it cheaper than French rival AXA, which trades at a multiple of 8.7.
AXA, Europe’s second-biggest insurer, this week reported a smaller-than-expected 40 percent decline in net profit in the first half of the year and said it was well positioned to benefit from rebounding financial markets.
(editing by John Stonestreet)