Allianz 2003 Profits $1.96 Billion, Dresdner Loss Weighs

March 19, 2004

Germany’s Allianz AG bounced back strongly from last year ‘s losses to post net profits of 1.6 billion euros ($1.96 bllion) for 2003. Nevertheless the poor performance of the Group’s banking operations, centered on Dresdner Bank, which Allianz bought in 2001, continues to weigh on earnings.

The insurer’s profitable year was due in large part to last October’s sale of its interest in Beiersdorf AG, the maker of Nivea products, for 4.4 billion euros ($5.4 billion). The sale contributed 2.8 billion euros ($3.44 billion) to earnings. The company was also hit by increased tax payments. It had a pre-tax profit of 2.52 billion euros ($3.1 billion). The result, however, after the tax payments, was lower than most analysts had forecast.

Michael Diekmann, Chairman of the Board of Management, expressed confidence that the company is going in the right direction. “We achieved an upswing in operating earnings of 4.5 billion euros [$5.53 billion] during the course of the fiscal year 2003 and placed the Group back on a solid capital base,” he noted. “This proves that our ‘3 Plus 1 Program’ is successful. It indicates that Allianz is again becoming a force to be reckoned with. We are convinced that by 2005 at the latest, we will be back where we belong – in the premier league of companies with strong earning power.”

The earnings announcement admitted, however, that “despite significant operating advances, 2003 saw negative factors exerting an influence and these had an effect on earnings.” It cited 840 million euros ($1.03 billion) in restructuring charges at Dresdner and “a tax charge on German life and health insurers amounting to 428 million euros [$526 million] as a consequence of new tax legislation.” Elsewhere in the report it confirmed that Dresdner had reported a net loss of 1.27 billion euros ($ 1.56 billion), only slightly smaller than last year’s 1.35 billion euros ($1.66 billion).

Insurance activities did significantly better than banking. Allianz overall gross premium income rose 2.8 percent in 2003 from 82.7 to 85.0 billion euros ($101.6 billion to $104.5 billion) compared to the previous year. Adjusted for consolidation and exchange-rate effects, internal growth amounted to 7.3 percent.

Income from P/C insurance rose 4 percent to 43.4 billion euros ($53.34 billion), “adjusted for consolidation and exchange-rate effects.” Allianz said this was “brought about by a pricing policy more commensurate with the risk involved, in particular in Germany, France, Spain and the USA. At the same time, the Allianz Group continued a consistent policy of streamlining the portfolio by eliminating unprofitable business.”

2003 also saw successful turnarounds at two of the group’s companies that had problems in 2002 – Fireman’s Fund Insurance Company (FFIC) and Allianz Global Risks (AGR). “The Allianz Group’s global industrial insurance business is focused at AGR, and here the combined ratio – i.e. the ratio of claims expenses and costs to premiums earned – improved significantly from 126.3 to 93.8 percent,” said the announcement.

“At FFIC ongoing business has a combined ratio of 88.3 percent. The French AGF is supposed to reduce the combined ratio from 102.8 percent to below 100 percent during the course of this year,” it continued. “The combined ratio for Property and Casualty business overall was 97.0 percent at the close of 2003. This is 8.7 percentage points below the value for the previous year (105.7 percent).”

A.M. Best Co. issued a statement indicating that Allianz ratings “remain unaffected following the release of year-end 2003 results, which are in line with expectations.” Best also said it “expects that Allianz’s continued efforts to improve its operating performance are likely to lead to considerably higher earnings in 2004.” However, the rating agency warned that the insurer’s “life earnings are highly dependent upon a further recovery of equity markets, and the restructuring of Dresdner Bank remains a significant challenge for Allianz’s management.”

In a Q&A bulletin, which accompanied the earnings announcement Diekmann stated: “We have ambitious targets that we will be able to achieve with the ‘3 Plus 1 Strategy’. This is a time of great uncertainty for the population at large, and we want to provide our customers with guidance and security. Our goal is to return Allianz to its position as the international financial services provider for Protection, Provision and Performance. A financial services provider in whom people will place their full confidence.”

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