's CFO hailed apositive start to 2016 in the first quarter, in spite of volatile marketshitting the business.
DieterWemmer said he preferred the near-€2.8 billion in achieved in the quarterto the prior-year €2.9 billion figure which benefited from a range of one-offgains in the life business. He said he was pleased at the returns and earningsper share reported and at the way Allianz in general was heading toward its2018 goals.
Allianzbenefited from a virtually "cat-free" quarter thanks partly to a mildwinter in Germany, and in Europe more generally. This resulted in a 93.3%combined ratio which is below the 94% target for 2018; operating profit inproperty and casualty rose 12.0% year over year in the quarter to €1.4 billion.
ButWemmer added that, discounting the benign conditions, the underlining combinedratio was close to 95% and that more work was required.
Unlikethe weather, volatile markets proved distinctly unfavorable in the quarter andhit Allianz's Solvency II ratio, as well as the performance of its assetmanagement businesses and investment result. The capital ratio declined to 186%,while revenues from third-party assets under management dropped by 11.8% yearover year; operating profits here dropped to €463 million.
AndreasSchäfer, an insurance analyst at Bankhaus Lampe, said in an interview thatmargin pressure in asset management was generally higher than expected, and thatrevenues and operating profits from the segment were the main disappointment inthe figures.
Wemmerinsisted that Allianz was reducing the sensitivity of its Solvency II ratio tointerest rates, and attributed part of the fall to the change in tax accountingrules. He insisted that Allianz was generating 10 percentage points of SolvencyII capital annually which he described as "a very strong message ... [We]are creating more solvency than we are consuming."
In anote, Thomas Seidl, an insurance analyst at Bernstein, calculated that swaprates had cut the solvency ratio by 27 percentage points, despite the insurercutting equity exposure and lifting asset duration to cut the effect ofinterest rates.
Speakingon the call, Seidl expressed concern that the capital being created was beingconsumed by capital markets and that this might impact the potential capitalreturn to shareholders. Wemmer told him "not to worry," implying thatthere were reserves available, and insisted that Allianz would operate with aSolvency II ratio between 180% and 200%.
"Ido not think that the markets were really a much greater problem for Allianzthan for other insurers," said Schäfer. " said yesterday that theirSolvency II ratio fell by between 20 and 30 percentage points, so I do not seeit as a problem specific to Allianz. It also was affected by changes to rulesin German life insurance."
ThorstenWenzel, an insurance analyst at DZ Bank, said in an interview that the SolvencyII ratio by its nature reflected market volatility and that he saw no cause forconcern in Allianz's ratio.
Allianzis exiting Korea, which negatively impacted the result from life and healthwhere investment margins also declined. Operating profit in life and healthfell year over year by 16.0% to €927 million after a strong prior-yearperformance particularly in Germany.
Inlife and health, as elsewhere, Wemmer said Allianz was on track and that it hadproduced around one-quarter of its annual operating profit target.
Capitalefficient products with alternative guarantees grew strongly with a net newbusiness margin of 3.3% while other products were below the 3.0% target for2018. Schäfer said the sales of capital efficient products represented the mostpositive area of Allianz's results. Seidl commented that returns in life andhealth were below target in the U.S., Italy and German health and said it was"difficult" to improve the life business.