German insurance giant Allianz (ALV) - which has both a property and a casualty underwriting business, a small life-assurance operation and a fund management operation - looks in good shape. Its profits in the first half of 2013 easily beat City analysts' expectations, while the fat dividend yield and undemanding share rating are hard to ignore.
- Robust underwriting performance
- Life and asset management arms growing
- Fat dividend yield
- Shares undemandingly rated for an insurer
- Premium rates could soften
- Weak investment return
At the core underwriting business, which generates about two-thirds of net premiums, the combined ratio (of claims to premiums) improved by 1.2 percentage points to a solidly profitable 96 per cent. Allianz achieved that despite suffering a €174m (£149m) increase in losses from natural catastrophes to €549m, which, in particular, was the effect of flooding in central and eastern Europe. That hit was more than matched by a benign claims environment in most of the group's other business lines, while rising premium rates also helped.
In the first half, the group's premium rates grew 1.9 per cent on the previous first half and only Allianz's credit insurance book saw rates fall. Rates rose especially strongly in the US (up 5.4 per cent), France (up 2.9 per cent) and the UK (up 3.2 per cent). True, firming rates may not last. Recent half-year figures from the Lloyd's insurers, for example, revealed that some business lines - US property catastrophe and aviation cover, for example - are under pressure and that could work through to less specialist areas. But there's no sign of that at Allianz yet and analysts at broker JPMorgan Cazenove expect the group's combined ratio to improve to 94.2 per cent for the full year.
ALLIANZ (ALV) | ||||
|---|---|---|---|---|
| ORD PRICE: | €113.38 | MARKET VALUE: | €51.7bn | |
| TOUCH: | €113.37-€113.38 | 12-MONTH HIGH: | €122 | LOW: €85.4 |
| DIVIDEND YIELD: | 5.1% | PE RATIO: | 8 | |
| NET ASSET VALUE: | €105 | COMBINED RATIO: | 96% | |
| Year to 31 Dec | Net premiums (€bn) | Pre-tax profit (€bn) | Earnings per share (€) | Dividend per share (€) |
|---|---|---|---|---|
| 2009 | 59.8 | 5.19 | 10.2 | 4.1 |
| 2010 | 63.3 | 7.17 | 11.2 | 4.5 |
| 2011 | 63.7 | 4.85 | 5.6 | 4.5 |
| 2012 | 66.0 | 8.63 | 11.4 | 4.5 |
| 2013* | 69.3 | 10.32 | 14.6 | 5.8 |
| % change | +5 | +19 | +28 | +29 |
*JPMorgan Cazenove estimates Matched bargain trading Beta: 1.4 £1=€1.17 | ||||
The life assurance operation is holding up, too. True, its operating profit did fall 18 per cent at the half-year stage to €669m, but that has more to do with investment-related issues, such as hedging losses in Germany. The value of the life unit's new business written, which reflects the value of the earnings stream expected over the life of the new contracts, actually rose by 17 per cent year on year. Alliance is also seeing life premiums rise strongly in most of its markets; the exceptions are the US, Switzerland and central and eastern Europe, where premiums fell.
Allianz's asset management arm also grew. Third-party funds under management, which exclude funds managed for the group, rose nearly 8 per cent in the year to end-June to €1,456bn. That was helped by a €43bn of net fund inflows in the first quarter, followed by a further €7bn net inflow in the second. The division's cost-to-income ratio, meanwhile, improved by 5.9 percentage points to 55.5 per cent and operating profit increased by 40 per cent to €804m.
Still, the group's own investment portfolio had a tougher time. That's 90 per cent invested in bonds, 2 per cent in cash, with the remainder in equities and real estate. The trouble is that - as with most insurance companies - Allianz's big fixed-income portfolio has been hit as bond yields have risen. Allianz also suffered foreign exchange losses. Accordingly, net investment income fell 5 per cent in the first half to €11bn, meaning a return of just 0.8 per cent.
