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Allianz Raises 2013 Earnings Target as Profit Climbs

Allianz Headquarters
Allianz SE headquarters stand in Munich. Allianz shares fell 0.7 percent to 123 euros in Frankfurt yesterday, paring gains this year to 17 percent and valuing the company at 56.1 billion euros. Photographer: Guenter Schiffmann/Bloomberg

Allianz SE, Europe’s biggest insurer, increased its target for full-year operating profit after third-quarter earnings rose 6.3 percent, beating analysts’ estimates.

Net income advanced to 1.45 billion euros ($1.94 billion) from 1.36 billion euros a year earlier, the Munich-based company said in a statement today. That compared with the 1.37 billion-euro average estimate of 14 analysts surveyed by Bloomberg. Natural disasters, in particular storms that hit Germany and Ireland in July and August, cost the insurer 464 million euros in the quarter, it said.

Allianz, led by Chief Executive Officer Michael Diekmann, raised its 2013 earnings goal to “slightly above” 9.7 billion euros as higher third-quarter profit in non-life insurance offset losses from European hailstorms and a fall in investment income. Insurers’ earnings are under pressure as lower interest rates hurt returns from bonds.

“This is the second quarter in a row that saw major natural catastrophes,” Dieter Wemmer, the company’s chief financial officer, said in the statement. “And yet, we were able to increase profits.”

Allianz raised the operating profit target from a range of 8.7 billion euros to 9.7 billion euros. The company reported 9.5 billion euros of profit for 2012 and 7.68 billion euros for the first nine months of this year. It said in August that the upper end of its target range was “in reach.”

Shares Advance

The company rose as much as 1.4 percent in Frankfurt, the biggest increase in more than two weeks. The shares climbed 1.1 percent to 124.3 euros at 9:54 a.m., extending gains this year to 19 percent and valuing the insurer at 56.7 billion euros. That compares with a 23 percent advance for the Bloomberg Europe 500 Insurance Index.

There will be a negative impact on fourth-quarter operating profit of 100 million euros to 400 million euros due to claims from European windstorm Christian, a review of product strategy in Korea and investments in information technology, Allianz said in a presentation on its website.

Operating profit at Allianz’s property and casualty insurer, typically the most important in terms of earnings, advanced 6.4 percent to 1.24 billion euros from a year earlier, as higher earnings in Italy and at the Allianz Global Corporate and Specialty commercial insurance unit helped offset a decline in storm-struck Germany.

Flood Losses

Insurance industry losses from this year’s floods and hailstorms in Germany may be as high as 5 billion euros, Hannover Re, the world’s third-biggest reinsurer, said two weeks ago. The Oct. 28 storm Christian, also known as St. Jude in the U.K., which mostly hit Germany and Denmark, may cost the industry 1.5 billion euros to 2.3 billion euros, catastrophe modeling firm AIR Worldwide said yesterday.

Operating profit at Allianz’s life and health insurance division decreased 5.6 percent to 769 million euros on lower investment earnings in Germany and “investment de-risking in Italy,” the company said.

The July start of a new life insurance product in Germany has been “highly successful,” Allianz said. Sales equalled 13 percent of new business of exclusive agents in September, it said.

Asset Management

Third-quarter operating profit at the asset-management unit, which includes Newport Beach, California-based Pacific Investment Management Co., declined 11 percent annually to 754 million euros. Third-party managed assets at the unit shrunk by 2.4 percent to 1.4 trillion euros at the end of September compared with the end of last year, which according to Allianz “mainly reflects the impact of a weaker U.S. dollar.”

The asset management unit had third-party net outflows of 26.7 billion euros in the quarter, mainly from traditional fixed-income products, Allianz said. That compared with net inflows of 31.5 billion euros a year ago.

Diekmann said in an interview last month that a plan by Pimco to expand into equities is proving harder than expected.

At the same time, Bill Gross’s Pimco Total Return Fund lost its position as the world’s biggest mutual fund. It has shrunk by $37.5 billion since the start of this year, ending last month with $247.9 billion in assets, according to data provided by Pimco and compiled by Bloomberg. The Vanguard Total Stock Market Index Fund ended October with $251 billion.

Lower Amortization

Allianz’s third-quarter earnings were boosted by a 94 million-euro increase in non-operating earnings, mainly from lower amortization of intangible assets and a decrease in acquisition-related expenses.

Tougher financial regulation such as Solvency II and Basel III will create takeover opportunities for Allianz, especially as mutual insurers may find it difficult to raise capital depleted by low interest rates or high disaster claims, Diekmann said in an interview last month.

Solvency II, intended to harmonize the way insurers in Europe allocate capital against the risks they take, was originally scheduled to come into force in 2012. It has been delayed several times over issues such as the treatment of long-term guarantees and may now be implemented on Jan. 1, 2016 with a transitional period.

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