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Allianz shows resilience in extraordinary circumstances: Jefferies

13th April 2022 - Author: Jack Willard

Ahead of Allianz’s 1Q22 results, analysts at Jefferies have weighed up the possible impacts from natural catastrophes, financial market volatility and the ongoing Russia – Ukraine crisis.

allianz-flagsAnalysts stated that non-life exposure to natural catastrophes remains manageable.

In 1Q22, the largest insured natural catastrophe events worldwide included European storms ($3bn-$6bn,), Australian floods ($2bn-$3bn), US tornadoes ($1bn) and the Japanese earthquake ($2bn-$4bn).

Analysts said that amongst these industry-wide claims, Allianz’s high market share in Central Europe and Australia lead them to presume moderate losses from these events.

In the model that analysts used within the report, they added €300 million for each event, along with presuming that 50% of each loss is in excess of the normal level, therefore this drove analysts to expect a 4.4% natural catastrophe loss ratio for 1Q, and 2.7pts for FY22.

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Furthermore, the report states that analysts presume that recent financial market volatility requires additional hedging costs in the US Variable Annuity book.

Analysts said that it would be reasonable to expect a modest revaluation of Eastern European, and Russian assets, albeit the costs of these mark-to-market moves is share with policyholders.

In addition, analysts presume that investment spread returns for the guaranteed savings annuities in 1Q22 will equate to 0.10% of the average policyholder reserves, which is usually 0.16%, implying a €163 million cut to operating profits.

Within asset management, Jefferies now mark-to-market for the decline in bond yields during 1Q22. Analysts “cautiously” presume that this prompted a -4.0% market return, predominantly at Premier fixed income investment manager (PIMCO), in the quarter and those performance fees brought in €24 million.

Analysts added that going forward, a key question will be whether PIMCO can record positive net flows as rates rise.

Jefferies analysts stated that they cut their EPS forecasts by just -5%, which demonstrates Allianz’s resilience even in the most “extraordinary of circumstances.”

Analysts said: “Though 1Q 2022 has been a challenging quarter for the industry, we believe that the impact on Allianz will be shown to be immaterial. Overall, our group earnings forecasts for FY 2022 only fall by 5%, an almost trivial cost when set against the backdrop of the crisis in Eastern Europe and extraordinary financial market volatility.”

Jefferies’ 12-month price for Allianz of €260 suggests an annual return of 23.4%, comprising 19.0% capital upside, and a 4.4% dividend yield, therefore valuing Allianz on 10.9x 2023F earnings for a yield of 4.4%.

Analysts also added that although Allianz’s exceptional diversification should neutralise the impact of most material macroeconomic and external factors, this can never be eliminated entirely.

As such, Allianz retains exposure to natural catastrophe events in the non-life business, shifting trends in health and mortality in the life business and financial market movements in all business lines.

 

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