Allianz 2Q Net Profit Seen -39% On Lower Cap Gains, Higher Claims

Allianz SE (ALV.XE), Europe's largest insurer by gross premiums and market capitalization, is expected to report a 39% decline in net profit for the second quarter, on lower income from own investments and higher costs triggered by earthquakes and other natural disasters.

Second-quarter net profit attributable to shareholders is forecast to drop to EUR1.15 billion from EUR1.87 billion in the same quarter a year ago, according to a Dow Jones Newswires poll of 15 analysts. Analysts in general expect lower realized gains on stock investments than in previous quarters, which will be visible in a weaker contribution from so-called non-operating items.

Allianz already said it realized a EUR130 million capital gain on reducing its stake in Industrial and Commercial Bank of China Ltd. (1398.HK) in April.

The analyst survey forecast operating profit to have risen 2.9% to EUR1.84 billion from EUR1.79 billion, and total revenue is also forecast to have gained 4.8% to EUR23.24 billion from EUR22.17 billion.

Most analysts linked the quarterly earnings forecasts to the previous quarter, rather than the same period a year ago, for better monitoring of the earnings trend.

The higher claims from natural disasters could have weighed on the quarterly combined ratio in the property/casualty insurance business. Still, most analysts expect an improvement in the combined ratio over the first quarter, which J.P. Morgan Cazenove analyst Michael Huttner attributes mainly due to lower motor claims in Germany and lower large industrial claims compared with the previous quarter. He sees the combined ratio at 97.2%, down from 100.4% in the first quarter and also lower than 98.9% in the second-quarter of 2009.

The combined ratio is a widely watched measure of an insurer's profitability in its core underwriting business, when stripping out the investment result. The ratio compares how many cents an insurer has to pay per euro premiums earned for claims and other costs; a figure below 100% means the insurer made a profit in its underwriting business, a figure above 100% means it made a loss.

Over the past years, European insurers in general have been hampered by rising insurance claims and enhanced price competition in key areas such as motor insurance business, where players are underscoring each other. In addition, life insurers have been challenged by the low interest-rate environment, which makes it more difficult to meet pledges to policyholders. Likewise, market conditions in the industrial business will remain challenging this year and next, while the mid-term outlook is positive, Allianz said at a recent investors day.

On Wednesday, AXA SA (CS.FR), Europe's second-largest insurer by market value, reported a 29% decline in first-half net profit to EUR944 million, hit by a EUR1.55 billion charge arising from selling part of its U.K. life operations in June.

Excluding the hit from the U.K. disposal, underlying profit declined 3% to EUR2.08 billion, as improving life insurance margins helped soften the blow of higher claims linked to natural disasters on its non-life operations.

Overall, Allianz is still benefitting from investor relief after the successful sale of Dresdner Bank to Commerzbank, completed in January 2009. The bank, which Allianz bought in 2001, had burdened the insurer's earnings for more than half a decade.

Investors will watch for a company full-year outlook and beyond. Allianz has previously said it expects an operating profit of around EUR7.2 billion for 2010, give or take EUR500 million.

Allianz shares closed up EUR0.27, or 0.3%, at EUR91.20 Wednesday. The shares have gained 25% over the past year, underperforming the Stoxx 600 insurance index, but putting the company's market capitalization at EUR41 billion.

By Ulrike Dauer, Dow Jones Newswires; [phone]; [e-mail]

(Elena Berton contributed to this article.)