Allianz Blames Greek Debt in 46% Profit Plunge

February 27, 2012 by David Pilla

Allianz SE said impairments related to Greek sovereign debt were the main factor in a 46% fall in 2011 net income.

The multiple-line insurer’s net income for the year fell to 2.8 billion euros (US$3.71 billion) from 5.2 billion euros a year earlier. Allianz reported 1.9 billion euros in “very conservative” nonoperating impairments on Greek sovereign debt and investments.

“Allianz was one of the very few financial companies that published an operating profit within target for the entire year, simply because everyone knew this was going to be a difficult and challenging, turbulent year,” said Chief Executive Michael Diekmann in a video conference call.

Diekmann said Allianz managed to stay within its target range for operating profit, at 7.9 billion euros for the year. He added that the profit target set last year — 8 billion euros plus or minus 500 million euros — was seen as conservative at the time but was “in fact ambitious” given the uncertainties in the financial markets as well as potential catastrophe losses.

The group’s revenue fell 2.7% to 103.6 billion euros, down from what the group said was a record year in 2010.

Diekmann said in addition to the Greek debt crisis, Allianz faced problems associated with persistent low interest rates and catastrophe losses that were “at an all-time high.” The group’s holdings of Greek sovereign debt have been written down to about one-quarter of their nominal value, he said.

Allianz also had to take big write-downs on its equity holdings in financial institutions, which account for about 22% of its investments, said Diekmann. He added the group still had a higher tax bill for the year, as those write-downs were not tax-deductible.

The write-downs on capital-market assets such as Greek debt were a one-off experience, said Diekmann. “Because of that, we are confident that 2012 will be a good year,” he added.

Diekmann said the ongoing sovereign debt crisis in Europe has “put several insurers into a tight spot.” As a result, several insurers are “for sale” in France, Poland and Italy, “while others are really suffering,” he said.

“For the second year in a row, our property and casualty segment was hit by an exceptionally high level of natural catastrophes,” said Diekmann. Allianz paid 1.8 billion euros in claims for natural catastrophes in 2011, 500 million euros higher than the previous year.

Operating profit for property/casualty fell 2.5%to 4.2 billion euros.

Diekmann said property/casualty insurance and reinsurance operations in Germany and the United States were hampered by catastrophe losses, but the segment saw strong results in Central and Eastern Europe, along with France, Italy and Spain.

Revenue was down in the life and health segment, mainly due to lower sales volume through banks and the discontinuation of the group’s life business in Japan, said Diekmann. Low interest rates and turbulence in the capital markets also affected life volume, he added.

Life-health statutory premiums fell 7.4% to 52.9 billion euros in 2011. The segment’s operating profit fell 17.2% to 2.4 billion euros.

Allianz SE currently has a Best’s Financial Strength Rating of A+ (Superior). The rating is under review with negative implications.

(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com)

Originally Posted at InsuranceNewsNet on February 23, 2012 by David Pilla.