Allianz expects 'relatively muted' growth in 2021, but posts unexpected Q3 profit

November 6, 2020.
Allianz posted a surprise third-quarter bump in its profits Friday. In this Friday, June 26, 2020 photo, the logo of the Allianz Group insurance is pictured in Berlin, Germany. (AP Photo/Michael Sohn)

Allianz posted a surprise third-quarter bump in its profits Friday. In this Friday, June 26, 2020 photo, the logo of the Allianz Group insurance is pictured in Berlin, Germany. (AP Photo/Michael Sohn)

on Friday posted a surprise 5.9% bump in its net profit for the third quarter, but executives expressed continued cautiousness about the near future as the pandemic continues to take its toll. 

The German insurer and asset manager saw net profit attributable to shareholders end at EUR 2.06 billion ($2.44 billion) for the third quarter, up from EUR 1.94 billion ($2.3 billion) year over year, and beating the reported analyst consensus estimate that profit would drop to EUR 1.62 billion ($1.92 billion). This was driven primarily by a higher non-operating investment result, though was offset by restructuring and integration expenses. Revenues decreased year over year by 6.1%, down to EUR 31.4 billion ($37.3 billion).

Allianz said that the COVID-19 situation has resulted in the greatest amount of challenges for the company, particularly as a recent increase in infections has led many governments to increase lockdown measures in an attempt to limit the spread of the virus.

Looking into 2021, Allianz Chief Financial Officer Giolio Terzariol told investors that Allianz expects its COVID-related losses to be “significantly lower” compared to 2020, though he did note that “growth is going to be relatively muted” due to continued lockdown measures.

“The situation as we look to 2021, if you ask me, is manageable,” Terzariol said. “I think the impact from COVID on the claims side will be limited. It’s more about thinking what the implications will be on revenues … [but] from a pure claims point of view, it shouldn’t be a major concern for 2021.”

During the third quarter, the economic effects of the virus had a small but noticeable impact on Allianz’s property and casualty insurance arm, which saw total revenues drop by 1.8% and its combined ratio worsen to 94.5.

Allianz’s life and health segment was hit harder, with revenues falling by 9.4% and the present value of new business premiums decreasing to EUR 12.9 billion ($15.3 billion) from EUR 16.1 billion ($19.1 billion). The most significant volume decreases were experienced in Germany and in the United States.

Terzariol told investors on a conference call Friday that while production is down as a “reflection of the current situation” on the life and health side, he believes that the level of Allianz’s new business margin is a positive.

“Despite low interest rates, we’re capable of operating our new business margin at 2.9% ... [it’s] a good indication of our position as we go into 2021,” Terzariol said.

The firm's asset management business grew its assets under management by EUR 13 billion ($15.4 billion) during the quarter, and Allianz said that positive market effects and strong net inflows were able to offset negative foreign currency translation effects to create an “overall stable development” for the third quarter.

The company also added that due to the economic uncertainty caused by the pandemic, it is fully discontinuing its 2020 share repurchase program, which had been previously suspended.

Terzariol said that in light of the lack of buybacks, the company would look into other possibilities and alternative methods to deploy capital in 2021, though he stressed that, "We will not compromise on financial discipline.”

“There’s no point in deploying capital on a suboptimal return, or buying suboptimal assets,” Terzariol said. “I would rather wait a year longer to do buybacks than regret for the next 10 years that we bought something that did not provide the returns.”

Saving