Allianz Posts Strong 1st Half Results, $115M Profit

Germany’s Allianz confounded many analysts’ forecasts by reporting strong gains in most of its operations, posting a net profit of 102 million euros ($115.26 million) for the first half of 2003. The group’s total revenues rose 4.9 percent to 49.5 million euros ($55.94 billion).

Comparisons with first half 2002 results aren’t really meaningful, as Allianz booked 3.5 billion euros ($3.96 billion) in the same period last year as a result of unwinding its cross shareholdings with Munich Re. The good results this year, however, seem to show that Europe’s largest general insurer is well on the road to recovery, following the losses it suffered as a result of the meltdown in world equity markets, the sluggish German economy, and last summer’s disastrous floods in Germany and Eastern Europe.

The company’s earnings announcement noted that it had “Positive net income for the first six months – adjusted for exchange-rate effects, global premium income is up 11.5 percent. It also registered 18.2 percent premium growth in life insurance business, and reported “clear improvements at Dresdner Bank, AGF, FFIC and AGR.”

“In the first six months of 2003, all segments of Allianz Group significantly improved their operating results. Moreover, the turnaround programs at Dresdner Bank, in the international industrial insurance business as well as in France and USA have made very good progress,” said the announcement. Second quarter results were especially encouraging as the Group posted a net income profit of 622 million euros ($703 million), offsetting the 356 million euro ($402 million) loss it reported in the first quarter of the year.

The declines in equity values helped as well. Allianz said, “thanks to the slight recovery in the capital markets, write-downs on the Group’s investments were substantially lower. In the second quarter they were down to 0.8 billion euros [$904 million] versus 2.3 billion euros [$2.6 billion] in the first quarter of 2003.”

The group made good on its promises to tighten underwriting standards and cut costs. “The combined ratio in the property and casualty business was brought down further to 97.1 percent. In the banking business it was possible to not only reduce administrative expenses by 17.9 percent compared to the same period of the previous year, but also to cut loan-loss provisions in the lending business significantly,” the announcement noted.

In presenting the results CEO Michael Diekmann, who took over from Henning Schulte-Noelle last December, indicated that “The trend is pointing in the right direction. But we are not yet out of the woods. Even though the current economic and capital-market environments are friendlier, we are continuing with our ongoing review of all business segments, and our focus is on improving our operating results.”

Allianz reported that it earned 52.9 percent of total premium income from the group’s P/C business, and 47.1 percent in the life and health insurance segment. It noted that “Compared to the first six months of 2002, premium income in the property and casualty insurance segment was up 0.5 billion euros [$ 565 million] to 24.1 billion euros [$27.3 billion]. Most of this increase was generated in Europe. Adjusted for consolidation and exchange-rate effects, premium income was up 6.0 percent. This growth is mainly due to higher premiums. Considering the portfolio adjustments made across the globe, this is quite remarkable.”

“In year-on-year terms, the claims ratio dropped during the first six months of 2003 by 3.2 percentage points to 71.4 percent. This was mainly due to a more selective underwriting policy, the decline in natural catastrophes and a more favorable situation with regard to major damages. The expense ratio has improved from 27.6 to 25.7 percent.”

Helmut Perlet, member of the Allianz Board of Management responsible for Controlling, noted: “The measures initiated for our turnaround candidates are already taking effect and are reflected in a lower combined ratio. Not only in France but also in the USA and in the industrial insurance business, the progress made is clearly visible. For instance, in our US operation Fireman’s Fund, the combined ratio was lowered to 91.7 percent in the continued lines of business. After amortization of goodwill, taxes and minority interests, the net income from the property and casualty business was 769 million euros [$869 million], up 742 million euros [$839 million] from the first quarter of 2003.”

In the asset management segment, Allianz said, “the Group posted an operating profit of 320 million euros [$361 million].” However, “owing to more stringent cost management, the cost-income ratio was brought down from 71.9 percent to 69.0 percent. After deducting loyalty bonuses and retention payments, mainly for the management and staff of PIMCO Group as well as Nicholas-Applegate [both are California based companies], write-downs on goodwill, taxes and minority interests, this segment showed a loss of 130 million euros [$147 million] for the first six months of the year, less than expected.” As of June 30, 2003, the Allianz Group had assets under management totaling 1.02 trillion euros [$1.153 trillion], an increase of 3.1 percent, or 31 billion euros ($35 billion) since year-end 2002.

In addition to strong performances in is life and health and asset management business, Allianz may have begun to see the light at the end of the tunnel in its banking operations, mainly Dresdner Bank, which has been hemorrhaging money ever since Allianz paid 24 billion euros ($27.12 billion) to acquire full control of it in 2001. Despite good profits from its investment banking operations, Dresdner, Kleinwort Benson, the bank posted a 437 million euro ($494 million) first half loss. The announcement indicated, however that “operating revenues were further stabilized. Total net interest income, net fee and commission income and trading income generated 3.7 billion euros [$4.18 billion], with the trading income more than doubled against the prior-year period to 1.071 million euros ($1.21 billion]. Almost half of this increase is attributable to successful trading in fixed income products.”

“As promised, we are working very hard to improve our profitability and are very pleased that this is beginning to produce a positive impact on our results. In order to strengthen this early trend, we will continue to work with great discipline in all areas of the Group,” Diekmann stated. “Our goals remain unchanged, i.e. to achieve a combined ratio in the property and casualty insurance business of below 100 percent, and profitable and above-market growth in the life and health insurance business as well as in asset management. In the banking business we continue to pursue a very ambitious goal: a break-even operating result. Although so far we have made good progress in this respect, it will be necessary – in order to secure the future competitiveness of Dresdner Bank – to initiate another very substantial cost-cutting program.”