AGCS posts €284m 2019 loss after €591m Q4 reserve addition

Allianz Global Corporate & Specialty (AGCS) posted a loss of €284m in 2019 and a combined ratio of 112.3%, as “disappointing” fourth-quarter reserve strengthening of €591m hit results. But Allianz said problems encountered by AGCS have also affected many of its competitors and are partly an industrial insurance issue following the long soft market. It therefore predicts that big price increases at AGCS and the wider market going forward will help restore profitability. Allianz’s fourth-quarter P&C operating profit decreased by 42.3% to €861m, compared to the same period in 2018. It said this was mainly driven by the reserve strengthening at AGCS predominantly for financial lines in Australia and the UK, product recall in Europe and general liability in North America. Allianz’s Q4 P&C combined ratio worsened by 5.5 percentage points to 99.6%. Allianz CFO Giulio Terzariol explained during a results call that this would have been 94.3% without AGCS. Allianz Group’s overall operating profit was stable at €2.75bn in Q4 as other business areas, particularly life, made up for problems in P&C and AGCS. Total fourth-quarter P&C revenues rose by 7.5% to €13.1bn, with group revenues up 7% to €35.5bn. Fourth-quarter numbers contributed to AGCS’s full-year operating loss of €284m, which is down €566m on the €282m profit posted in 2018. The business said this was the result of a lower underwriting result, partly offset by higher investment income. AGCS’s 2019 combined ratio of 112.3% was 10.8 percentage points worse than 2018. Although cat losses were lower than the previous year, the unit suffered an increase in large claims, most notably in liability, aviation and engineering. AGCS said that in addition, the claims environment for prior-year long-tail exposures deteriorated. But AGCS saw gross premium written increase by €914m, or about 10%, to €9.1bn last year, supported by average rate increases of 10.8% across its portfolio. AGCS attracted new business of €1.7bn in gross written premium, which it said compensated for adjustments in underwriting appetite and exposure reduction in parts of the portfolio. Mr Terzariol said much of the problems faced by AGCS are an industrial insurance market issue and quite similar to some of its competitors. He said this means price increases going forward are likely to be “very, very strong”. “We have seen massive price increases across the board and that should support the recovery of AGCS’s profitability,” Mr Terzariol added. “In the US we see massive price increases. We also believe claims inflation in the US might be stronger compared to what we see in Europe. But we are also seeing price increases in Europe, maybe not as strong as the US but the expectation for claims inflation is a little bit lower. In Europe we are also changing terms and conditions, which is very important. It is not just about rate increases, it also really changing the portfolio so deductibles are going up, limits are going down. We are also making decisions on whether to renew accounts or not. So there is a lot of pruning going on in Europe. Overall… we see a strong reaction and huge hardening of the market more or less across the board,” continued Allianz’s CFO. Mr Terzariol said Allianz’s P&C segment performed “below expectations” in 2019, following the “disappointing” reserve strengthening at AGCS. The P&C business saw operating profit fall by 11.9% in 2019 to €5bn, while its combined ratio was down 1.5 percentage points to 95.5%. It would have been 93.5% without AGCS. But total P&C revenues rose 6.8% to €59.2bn, from €55.4bn in 2018. Problems in P&C, and AGCS in particular, were compensated by other areas of Allianz’s business. This saw the group increase operating profit by 3% to €11.9bn in 2019. Total revenues were up 7.6% to €142.4bn. “2019 was another successful year with record results for the Allianz Group. This reflects the trust of customers and shareholders and the engagement of our excellent people,” said Oliver Bäte, Allianz’s CEO.

AGCS posts €284m 2019 loss after €591m Q4 reserve addition

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