Europe's Big Insurers Post Solid Results Despite Disaster Claims

  By Ulrike Dauer 
 

FRANKFURT--Germany's Allianz SE (ALV.XE) and France's Axa SA (CS.FR), two of Europe's largest insurers, posted overall solid results Friday, helped by lower sovereign debt hits, but costs for disaster-related claims ate into some of the profit.

Allianz, Europe's largest insurer by market value and premium income, was one of the star performers of the sector, posting a 39% increase in first-half net profit to EUR2.61 billion, which beat the analysts consensus forecast of EUR2.58 billion. Axa, Europe's No. 2 insurer by market value, posted a net profit of EUR2.59 billion for the first six months, which was down from a year earlier but still above analyst expectations. Axa's year-ago figure was boosted by asset sale gains.

This comes a day after Italian peer Assicurazioni Generali SpA (G.MI) reported a 44% rise in second-quarter net profit, as the absence of impairments for Greek government debt felt a year earlier helps the recent period's performance.

Insurers got through the crisis in better overall shape than the banking sector, and the ageing population and rising demand for retirement products is usually playing in their favor. However, narrow margins in the life insurance segment have been exacerbated by protracted low interest rates during the crisis, which causes them to seek alternative sources of investment returns to ensure policyholder pledges and planned tougher capital requirements are met.

A better diversification of the business, such as into asset management, enables them to compensate for volatile property & casualty insurance results, which are vulnerable to major disasters. Last year around this time, high costs for earthquakes and the tsunami in Japan, earthquakes in New Zealand and flooding in Australia combined with heavy losses due on Greek sovereign debt holdings. This year so far has been dominated by moderate disaster claims, for which, however, primary insurers, rather than reinsurers, bore the brunt.

Silvia Quandt analyst Christian Muschick called Allianz's performance "much better" compared than its two competitors. While all three released good results in life insurance, Allianz's claims costs were in line with expectations, while Axa's substantially higher claims costs disappointed, the analyst said.

The major claims in the period came from earthquakes in Italy, tornadoes in the U.S. and thunderstorms in Germany, which cost Allianz EUR174 million in the second quarter, unchanged from the year-earlier quarter. A EUR120 million upward revision of claims estimates for last year's flood in Thailand added to this.

Allianz's weaker operating profit in the P&C business, though still the main contributor, was offset by substantial improvements in the life/health and asset management segments in the second quarter.

Axa reported improvements in the life and non-life business in the first six months over the year-earlier period, while the international and asset management segments were weaker. Last year's international business benefited from gains related to the sale of some of Axa's Asia Pacific operations. Asset management operations was lower this year due to "lower management fees reflecting a shift in product mix as well as lower average assets under management at the AllianceBernstein unit," Axa said.

While all insurers are seeking alternative investments such as real estate, infrastructure and corporate bonds to achieve the investment returns needed to keep pledges to policyholders, the pressure of low interest rates hasn't yet fed into their results, Credit Suisse analysts cautioned.

Silvia Quandt's Muschick said insurers with international operations are much less vulnerable to low-interest rate pressure than insurers with operations in a single country, something that shold benefit big players like Allianz, Axa and Generali.

All three insurers' shares were up sharply in late trading in a higher overall day for global financial shares. The Stoxx 600 insurance index was up 4.2% at 1450 GMT.

-Write to Ulrike Dauer at [e-mail]

(Noemie Bisserbe, Alexandra Edinger and Giovanni Legorano contributed to this article.)

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