AGCS back on track with big Q1 turnaround

First-quarter 2021 results published by German insurance group Allianz appear to show that the relaunch of its industrial insurance arm Allianz Global Corporate & Specialty (AGCS), led by Joachim Müller since he took over as chief executive officer in December 2019, is making good progress. AGCS has struggled to provide a decent return to the group in recent times, delivering combined ratios well above 100% even before the arrival of Covid-19, as it struggled to cope with the extended soft industrial insurance market along with the rest of the sector. Covid-19 arrived just as Mr Müller and his new management team kick-started the group’s re-underwriting process, which saw it walk away from significant business in difficult areas such as German auto recall, to focus firmly on profit and leadership in key selected lines rather than overall volume. Any progress from the renewed focus on underwriting profitability was overshadowed at this point last year, however, as AGCS was forced to post €233m in Covid-19-related reserves. This meant the insurer reported a combined ratio of 117.5% and an operating loss of €141m at this point last year. The big hit taken for Covid-19-related losses last year was, however, not repeated in the first quarter of this year to the same extent and, along with the remedial actions taken across the group since the relaunch began, enabled AGCS to report a much healthier set of figures for the first quarter of this year. Gross premiums written decreased by €73m to €2.938bn in the first quarter of this year, compared with just over €3bn at the same point last year. AGCS said that a positive impact from effective rate changes of 22% for renewal business across the portfolio was offset by underwriting actions targeting loss-making accounts and segments. As risk and insurance managers will be more than aware following tough recent renewals, the strongest rate increases were achieved in financial lines, property and aviation. AGCS also said that long-tail lines of business observed “strong momentum on rate improvement”. Mr Müller and his management team will have been particularly pleased to see the impact of this, as well as a much reduced Covid-19-related reserve addition of €40m, on the combined ratio. For the first quarter of this year, it stands at 98.3% – some 19.2 points better than last year’s horrible number. Apart from the much lower Covid-19 reserve addition, AGCS also benefited from much lower medium-sized and large losses during this period, while frequency was also down. The impact on the operating profit was clear. For the first quarter of this year, AGCS reported a profit of €81m, compared with last year’s Q1 loss of €222m. Allianz SE CFO Giulio Terzariol was positive about the overall group P&C result and AGCS in particular, speaking during an analyst conference call to report the results. He commented on the “very good path regarding AGCS” and the “disciplined growth” opportunities that the group is now after at AGCS. “We see good rate increases across the board and a combined ratio below 100% in all lines of business. We did a lot of re-underwriting and exited segments last year. We are now coming to a point where we can expand our risk appetite in a cautious and disciplined approach and explore growth again (outside financial lines US)… the AGCS combined ratio of 98% is solid and can withstand some headwinds later in the year and still remain on target,” said Mr Terzariol. The recovery at AGCS was accompanied by a decent set of group figures that led to a slight increase in its share price in early trading. Total revenues of Allianz Group declined 2.6% to €41.6bn for the first quarter of 2021, compared with €42.6bn, flat adjusted for currency and consolidation effects. Operating profit increased 44.8% to €3.3bn, while net income attributable to shareholders grew 83.4% to reach €2.6bn, mostly driven by operating profit growth. The overall group P&C business reported total revenues of €19.7bn, down from €20.3bn at this point last year. Operating profit rose strongly by 46.6% to reach €1.5bn. The group said that a “significantly higher” underwriting result benefited from a decrease in losses from natural catastrophes and from “negligible” Covid-19 effects in the first quarter of this year. The combined ratio improved 4.7 percentage points to 93.0%.

AGCS back on track with big Q1 turnaround

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