Munich, Frankfurt Despite a record profit last year, Allianz faces enormous challenges. “We have to make Allianz more resilient because there is an increasing number of external shocks that we have to adapt to,” said Allianz boss Oliver Bäte at the presentation of the balance sheet on Friday.
The three Group segments of property insurance, life insurance and asset management have to cope with major tasks, albeit in different ways.
With an operating result of 14.2 billion euros, the Dax group exceeded analysts’ expectations by around half a billion euros in the past year. This level should be maintained in the current year with a range of one billion euros up and down.
Allianz has been pursuing the strategy of updating results for a long time. In the past ten years, the precisely planned forecast has been exceeded in each case, with the exception of the corona year 2020.
However, there are clear differences in the contribution to earnings that the three pillars of the group are expected to make in the future. Here, property insurance is particularly in demand, as it has been the biggest source of profit to date. It is expected to earn seven billion euros this year, around 800 million euros more than last year.
Lots of volatility in the life insurance and wealth management segments
Benjamin Serra from the rating agency Moody’s highlighted the developments in industrial and credit insurance in particular – with one caveat: with a contribution to earnings of almost 50 percent, the group, which was previously considered very balanced, would be particularly dependent on this line of business.
According to current planning, the other two segments, life insurance and asset management, will probably earn less than in the previous year. A rather unusual development at Allianz. In life insurance, the group expects five billion euros after 5.3 billion euros in the previous year, in asset management it should be three billion euros after previously 3.2 billion euros.
“There is a lot of volatility in both segments, so we plan conservatively,” said CFO Giulio Terzariol, explaining the forecasts. That didn’t come as a surprise to the analysts. The outlook for 2023 is in line with expectations, wrote Kamran Hossain from the US bank JP Morgan.
Allianz ticks off several stress factors
The fact that some negative factors from the current year are likely to have largely been overcome should also have a positive effect. The extensive withdrawal from Russia recently cost around 400 million euros, while hyperinflation in Turkey cost 200 million euros.
Last year, however, the group was most burdened by the processing of failed hedge fund speculations by the subsidiary AGI under the name Structured Alpha. Group boss Bäte emphasized on Friday that the topic for Allianz was closed. “Structured Alpha is behind us,” he said. On the compliance side, however, the group must continue to make improvements. This is one of the most important learning processes from the billions in damage.
It is also important to him that around 90 percent of the approximately six billion euros that flowed went as compensation to customers. Investors see it that way too. “It was clever to fully compensate customers,” says Steffen Weyl, fund manager at Union Investment. From his point of view, the Structured Alpha topic is complete. In public, it should come up again at the general meeting.
The stock was down on Friday
Allianz still has some catching up to do with the earnings targets that the group set itself when it presented its new strategy at the end of 2021. Earnings per share should therefore increase between five and seven percent per year. Most recently, just under 2.5 percent was achieved.
The return on equity, which should be at least 13 percent, was also lower at 10.3 percent. “I expect that we will achieve these goals in 2024,” announced CFO Terzariol.
Allianz was not able to score with its numbers on the stock exchange. On Friday, the paper was one of the biggest losers in the Dax. Market observers also spoke of profit-taking after the price increases in recent weeks. Berenberg analyst Michael Huttner also speculated on Thursday that Allianz could announce a new share buyback with the annual figures. However, that has not been confirmed.
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The last program worth one billion euros is still running. The Dax group only launched this in November, and it should run until the end of this year at the latest. 544 million euros were invested in treasury shares by the beginning of February.
Nevertheless, the majority of analysts remain positive. According to data provider Bloomberg, more than two-thirds of financial professionals recommend buying the stock and almost a third advise holding it. There are no sell recommendations.
Other large European insurers also did well in 2022 in a difficult environment
One of the biggest optimists is still Huttner von Berenberg, who last saw the price target at 304 euros – and thus more than 40 percent above the current price. In his view, the valuation is currently well below the five-year average.
Will Hardcastle from UBS, for example, is more cautious about the future development of Allianz shares. Like Huttner, he advises buying the paper, but has only set the price target at 233 euros.
Other large European insurers also did well in 2022 in a difficult environment. The Zurich group, which presented figures a few days ago, was able to increase operating profit by twelve percent to $ 6.5 billion in 2022. This is the highest value since 2007.
The Swiss also want to pay out more to shareholders: the dividend is to increase by two francs to 24 francs per share.
“Allianz has the most ambitious dividend policy in the sector”
With the presentation of its three-year strategy, Allianz announced an annual increase of at least five percent or alternatively a payout ratio of 50 percent.
For 2022, shareholders will receive EUR 11.40 per share after EUR 10.80 in the previous year. “Allianz has the most ambitious dividend policy in the sector,” praises Union fund manager Weyl. CEO Bäte has a powerful tool in his hands.
More: Allianz exceeds expectations with record operating profit.