A bumper equity issue from Aegon and a disappointing dividend from Allianz stirred fresh fears about European insurers’ capital strength on Thursday, weighing on their shares.
The capital-boosting measures by Allianz and Aegon suggest the industry is worried Europe’s Solvency II capital rules will be even tougher than previously thought, making big dividend increases or share buybacks less likely, analysts said.
“Investors are asking ‘where’s the cash, going into Solvency II?'” said one London-based analyst at a large investment bank.
The Stoxx 600 European insurance share index was down 1.7 percent at 1137 GMT, eating away at an 11 percent gain in the year to date, and underperforming the wider market, which was down 0.3 percent.
Solvency II, scheduled to come into force in 2013, is intended to make sure insurers hold reserves in proportion to the risks they underwrite, but many in the industry fear it will lead to an excessive ratcheting up of capital requirements.
Allianz chief executive Michael Diekmann warned that the current draft of Solvency II would be damaging to life insurers as it would result in massive swings in the amount of capital they are required to hold.
“German life insurance is endangered by Solvency II,” he told reporters on a conference call.
“Sticking to the rules as they now stand — something I cannot imagine — would damage the interests of all parties without gaining anything economically sensible.”
Dutch insurer Aegon said it planned a share issue of 1 billion euros ($1.38 billion), more than some analysts had expected, to help repay a taxpayer-funded bailout it received at the height of the financial crisis.
Analysts said the capital raising was also designed to ensure that Aegon had an adequate buffer under Solvency II.
“Aegon’s way of speaking clearly indicates that they have Solvency II in mind, with references to a stronger capital position,” said Dirk Peeters of KBC Securities.
“You see that Solvency II, similar to Basel III bank rules, is being translated into higher capital requirements.”
Germany’s Allianz, Europe’s biggest insurer by market value, raised its dividend by a less-than-expected 9.7 percent despite posting better-than-expected 2010 profits.
Jefferies International analyst James Shuck said Allianz’s underlying profit was flat as the company struggled with persistently weak insurance prices.
“The underlying position hasn’t really got any better. There’s this stubborn story of no real improvement in the underlying position because of the flat rating environment we’re living in,” he said.
Britain’s biggest commercial insurer RSA reported on Thursday an 18 percent dip in its full-year profit, broadly in line with analysts’ forecasts, as cold winter weather resulted in a spike in claims.
Allianz was down 2.9 percent, Aegon was off 3.9 percent, and RSA was 2 percent lower by 1137 GMT.
(Additional reporting by Gilbert Kreijger in Amsterdam and Christian Kraemer in Munich; Editing by Alexander Smith and Will Waterman) ($1=.7270 Euro)
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