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Allianz German Profit Contribution Seen Rising in 2012

Source: Dow Jones

Posted on 02 Mar 2012

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Allianz SE, Thursday said its German operations--the largest within the group -- are expected to contribute "significantly higher" profits to the group this year, although the gains will depend on improved markets and an easing of the rate of natural disasters.

Markus Riess, who heads the German unit, Allianz Deutschland AG, told the unit's annual news conference that profit should improve in property-and-casualty insurance if costs for natural disasters "return to normal." He said there should be a small increase in premium income for P&C in 2012, while premium income in life-and-health insurance is will likely fall.

It wasn't immediately clear whether the profit guidance refers to operating profit or net profit. Riess declined to give more specific guidance, but he said that in a "normal" year, claims for natural disasters would be some EUR200 million lower, or about half the EUR397 million Allianz paid in 2011.

The German unit contributed EUR716 million to 2011 group net profit of EUR2.55 billion, a 46% decline from a year earlier, which Allianz attributed to higher costs for claims arising from natural disasters and a smaller investment result.

Higher risk provisions in its small banking business, notably in shipping financing, and a goodwill write-down on its small German private bank unit, Oldenburgische Landesbank, also held back the annual results, said Allianz--Europe's largest insurer by gross premiums and market capitalization.

Riess said that most business segments showed "new growth momentum" in 2011, and that a trend reversal was reached in P&C, where the decline in gross premium revenue was halted despite the difficult year. "That shows that we are on the right track," Riess said.

The unit's operating profit fell 19% to EUR1.43 billion. Total revenue was off 1.2% at EUR28.19 billion.

Despite the expected profit rise, the Germany unit's revenue contribution will likely be lower this year and the operating environment will continue to be difficult, Riess said.

The German operations will be in the spotlight this year, after Allianz last week put its regional focus on improving P&C operations in its German home market, along with the U.S., and guided that the German contribution to group results should increase over the next two years.

Through a number of measures--such as rate increases in motor business, a new setup of the insurance agency network to boost productivity, better claims management and cost reduction-- the German P&C unit's operating profit contribution could rise by more than EUR500 million in the runup to 2014, Allianz SE CEO Michael Diekmann said Friday.

Allianz's German operations have undergone substantial cost-cutting, restructuring and downsizing in the past six years. It shed about 5,000 jobs between 2006 and 2009, reduced German administrative locations to 10 from 21 and merged its information technology platforms. As a result, annual costs have dropped by some EUR500 million to EUR600 million since 2009 compared with 2005.