AGF 1st Half Net Up Slightly, Despite Fall in Equity Values

September 4, 2002

Assurances Generales de France (AGF), the French subsidiary of Germany’s Allianz, announced 1st half net income of €364 million*, a 1.4 percent increase over the same period last year, despite taking a €333 million* charge for the decline in equity values.

The results were much the same as those posted a day earlier by AXA (See IJ Website Sept. 3). While AGF’s net profit from its P/C operations rose 44 percent to €174 million*, mainly due to premium increases and a reduction in the overall group’s combined ratio from 111.2 percent to 106.6 percent, declines in equity values caused a drop in its life business of 18 percent, and depressed income from its asset management and banking activities by 42 percent.

A bulletin on the Allianz Web Site explained that, “Total write-down provisions, i.e. impairment + liquidity risk, stood at 333 million euros in first half 2002, of which the shareholders’ portion totaled 212 million euros.”
” – This figure broke down into impairment provisions of 277 million euros and liquidity risk provisions of 56 million euros. Most portfolios were affected by impairment provisions. Conversely, only certain international subsidiaries and certain small French subsidiaries had to book liquidity risk provisions.”
” – Provisions for write-downs in international insurance activities totaled 150 million euros, including liquidity risk provisions of 52 million euros. These provisions had a significant impact on the contributions of both life & health and property & casualty businesses.”

It concluded that, “As a result, capital gains net of write-down provisions (excl. shareholders’ portion of holding companies), stood at 98 million euros*, down 70 percent compared with ½ 2001 (330 million euros).”

The outlook, while full of uncertainty, expressed some optimism for the rest of the year. As more than one company has noted AGF indicated that, “Numerous uncertainties still cloud the near-term economic and financial horizon.”

It warned that, “If the financial markets were to remain at current levels, additional provisions for write-downs would have to be booked at December 31, 2002,” and went on to state that “AGF should maintain return on allocated capital for all of 2002 at its H1 2002 level of 11 percent.” However, the company maintained an optimistic outlook that its “Underlying profit excluding AGF’s capital gains should be up sharply in 2002.”

The problem AGF faces, along with the rest of the industry, is that a substantial portion of its income is normally generated by investments, including capital gains. When these are nonexistent, or, as in the current market, they slip into negative territory, it inevitably decreases profits. The next three months will be especially critical, as the industry’s 1st half results don’t reflect the big falls in the global equity markets in July, August, and apparently September. Unless the markets turn around substantially by the end of the year, more writedowns are inevitable.

* Editor’s Note:
The euro is currently trading at .9968 to the dollar, essentially at parity; therefore dollar and euro amounts are virtually the same.

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