Ahead of Q1 2022 reporting season, Berenberg has said that it estimates that global insurer Allianz will have €150 million of total losses from its various Russia exposures.
The firm said that it believes that Allianz will impair its €1.5bn cross-border investments in Russia in Q1 2022E, and also take a charge on the €0.5bn equity of its local subsidiaries.
Berenberg also stated that it believes there is a negligible impact on claims, and that it estimates that Allianz will offset the extra €0.1bn trade credit insurance claims at Allianz Trade with reserve releases.
Along with losses on its Russia exposures, analysts said that Allianz faces a number of challenges in the year ahead, including the impact of higher interest rates on the market value of PIMCO assets under management, net inflows and fees, and high Q1 2022E natural catastrophes.
However, the firms believes that the earnings momentum of Allianz’s core insurance operations means that the impact on operating profit of these challenges will be modest.
Berenberg stated that this is helped by the benefit of a stronger US dollar versus euro exchange rate, with a 10% move adding €0.5bn to Allianz’s operating profit, and both the Aviva Poland and Aviva Italy acquisitions estimated to add €0.3bn to the operating profit too.
Berenberg added, “As a result, we reduce our forecasts for group operating profit and net income by 1% for FY 2022E, FY 2023E and FY 2024E. We reiterate our Buy rating with our thesis being that Allianz will settle the remaining charges on Structured Alpha for €2bn by August 2022E, and that it will announce €2bn extra buybacks in H2 2022E, on top of the €1bn buyback it is currently doing.”
Furthermore, the firm estimates high natural catastrophe claims in Q1 2022E, with claims totalling €300m for European storms and floods, €300m for Australia floods, and an extra €50m for small events.
As a result, Berenberg estimates a rise in Q1 2022E combined ratio to 94.5% at Allianz. However, while this is above the firm’s 93% FY 2022E guidance, it has the protection of reinsurance aggregate cover from €1.2bn to €1.7bn for the year as a whole.
In light of this, Berenberg added that it is confident that Allianz’s non-life unit will report a FY 2022E operating of €5.99bn, which is just below the company’s €6bn target.
The firm also addressed how the recent rise in US interest rates is negative for PIMCO, adding that this is because PIMCO manages mainly fixed-income investments whose market value drops as interest rates rise, leading to reduced fees.
However, Berenberg stated that in the medium term, higher interest rates mean the accrued investment income in PIMCO’s funds is set to rise, and that it believes that this will lead to a “bounce in the company’s earnings.”