ALIZY - Allianz: Higher Operating Profit But Lower Net Income

• Above all, Allianz confirmed its 2022 target.
• The Solvency Ratio II is back at 200%.
• We comment on Allianz's Q2 performance with negative and positive pieces of evidence.

After our recent publication on AXA's Q2 performance , today the German insurer ([[ALIZF]]; [[ALIZY]]) presented its three-month numbers . To sum up, Allianz delivered mixed results and the stock price is currently declining by more than 2%. Why?

1. In Q2, market volatility impacted the company which closed the account with a net profit down to €1.7 billion below market expectations that forecasted €1.8 billion;
2. Third-party assets fell by €109 billion and the Munich-based company blamed uncertainties related to inflation and stock market turmoil;
3. Compared to the second quarter of 2021, the P&C combined ratio improved to 93.6% from 93.9% although it did not hit the consensus estimate of 93%;
4. Due to the market volatility, it recorded a €282 million write-down in the Life & Health division;
5. This quarter marks a return to normal for Allianz, which agreed to pay more than $6 billion in mid-May after its U.S. wealth management unit pleaded guilty to criminal securities fraud. However, this is a shadow for one of Germany's most valuable companies and although most of the costs associated with the case are behind it, the matter has left its mark on the second quarter as the company had recorded restructuring expenses of over €100 million for the closure of the US funds unit AGI. We already commented about that and we believe that Structured Alpha Funds is already priced in .

No more negative news, numbers in hand, the company delivered solid performance too. We are currently taking advantage of the stock price decline to increase our position. Whoa, why are we still positive?

1. The operating profit improved by 5.3% to €3.5 billion. This positive outcome was driven mainly by the P&C business, but also by the improvement in underwriting. In addition, we should include the better performance achieved thanks to the higher investment results (Fig 1).
2. Allianz is very well capitalized and thanks to the FCF generation was able to deliver a Solvency II ratio of 200%, up 1% compared to the Q1 results. Just to note, over the period, the German insurer paid €4.4 billion in dividends.
3. There was a positive impact on AUM of €87.7 billion from exchange rate effects, but it is irrelevant in our forecast.
4. More importantly, the group confirmed its 2022 target (Fig 2).

Conclusion and Valuation

Although the Allianz stock has underperformed the Eurostoxx by 2% in the last year, while its competitors have outperformed the Eurostoxx by about 2%, Mare Evidence Lab confirmed the buy rating and the target price at €240 per share, noting that the second-quarter operating results were good thanks to the increase in P&C sector outcomes and a strong performance in revenue growth delivering a plus 8.2% to €37.1 billion (well ahead of its closest competitors such as AXA and Generali). The Solvency II coefficient was substantially in line with the consensus estimate and is above the capital requirements. Even if we continue to remain cautious due to the uncertainty on the PIMCO flows, the guidance confirmation for the current year is extremely good. As we can see, the company confirms the €13.4 billion in operating profit result. Moreover, Allianz is moving on with the buyback and this should support its depressed valuation.

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