Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The insurance business has been a reliable cash cow for decades. "You, the client, pay we, the insurers, large sums of money," diminutive British comedian Ronnie Corbett once said. "That's it."

That's not quite enough to excite investors these days. Big insurers such as Germany's Allianz -- which disappointed the market with quarterly results on Friday -- have become lumbering giants, delivering fistfuls of dividends and tidy profit but suffering from tepid growth and cost pressures. Most worrying is that those dividends might not be quite as rich in future if financial-market turbulence and pressure to boost capital under the Solvency II regime keeps intensifying.

But even taking into account the threats, the current wave of investor disappointment about the sector seems excessive. Allianz shares have fallen 15 percent so far this year: worse than peers, worse than the broader market and not that much better than the banks. The stock was one of Europe's weakest performers on Friday, falling about 3 percent despite a set of results that admittedly didn't have too much bang, but delivered plenty of bucks. 

Double Indemnity
Allianz and other insurers have performed worse than the broader European market this year, and aren't that much better off than the banks
Bloomberg data

A raised dividend, increased operating profit and a Solvency II capital ratio of 200 percent -- only very slightly below the sector average -- elicited the financial-market equivalent of a shrug, despite a balance sheet that can clearly support an above-average dividend yield of 5.4 percent.

Solid But Unspectacular
Allianz's capital ratio is slightly below the sector average
Sources: JPMorgan research published Feb. 16, company reports

Now of course, it wasn't all good news. Allianz's combined ratio, a key metric tracking underlying profitability that measures the cost of claims versus income, ticked higher in the fourth quarter. Maybe that's a sign of price pressure. The insurer's forecast for 2016 also cited "higher uncertainty" and targeted about 10.5 billion euros ($11.6 billion) in operating profit -- essentially flat on 2015. If 2015 is as good as it gets, the worry is that there are more risks than rewards ahead.

But if market storms are brewing, is Allianz really such a bad place to be? Even on the combined ratio, it still compares well with peers.

Costs Under Control
Allianz stacks up well against peers on cost of claims versus income
Source: company reports

Its capital position looks solid too: JPMorgan analysts say it can absorb the risk of more market turmoil while still delivering on dividends. And it has a strong and expanding foothold in asset management, an area insurers want to dominate as negative interest rates push investors into higher-yielding products. The outflows from Allianz's Pimco after star fund manager Bill Gross's departure have been all but staunched. Allianz has also bought a UK fixed-income boutique from Old Mutual.

What investors really wanted was a nice surprise, but there was no insurer jumping out of a cake with a check. While rival Aegon dazzled investors with a 400 million-euro buyback, Allianz steered clear of any such immediate juice to earnings per share, sticking to its stolid 5 percent annual growth plan for EPS. While the insurer has plenty of dry powder for acquisitions, saying its M&A budget might rise to 3 billion euros this year, there seemed to be little fresh insight on Friday about how it might boost growth.

Allianz trades on a price-to-earnings ratio of 9.1 and a price-to-book ratio of 1.0. Both are below the median of peers, according to Bloomberg data. The stock's priced for imperfection. In a market environment that itself looks pretty imperfect, that just might be too harsh.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net