ALIZF - Allianz Q2 Earnings: Solid Numbers And Solvency Strengths

2023-08-15 00:55:52 ET

Summary

• Allianz reports a 90% increase in net profit for the first half of 2023, reaching €4.37 billion.
• Improving trends in the combined ratio and reinvestment yield. Allianz achieved solid results in the investing activities.
• Despite dividend payments and an ongoing buyback, Allianz's solvency II ratio reached 208% and was up on a quarterly basis. Following H1 performance, we decided to increase our target price.

Our readers know we have a good grip on the EU insurance sector. Here at the Lab, we already commented about Zurich and AXA 's Q2 results. Following Allianz's quarterly release (ALIZF) (ALIZY), we are back to analyzing today's world's largest insurers. In detail, Allianz is a financial conglomerate that offers life and savings products, P&C insurance, health and medical insurance, and asset management solutions (with also PIMCO). As mentioned, in 2022, Allianz had to face a complicated year, and we suggest our readers check on our previous publication, " Significant Headwinds Resolved ." This is one of the reasons why Allianz recorded such remarkable numbers compared to Q2 and H1 2022. Despite a negative momentum, the German insurer proved to be a resilient player. In our deep-value strategy, since September 2022, we have achieved a total return of 56% (including the tasty dividend payment).

Q2 results

Starting with the CEO's words, Oliver Bäte explained how the company's " excellent results in the first half of 2023 demonstrate the strength of our fundamentals as we capitalize on our global scale and diversified business mix for the benefit of our customers and our shareholders ." As a snap, Allianz achieved a core net profit of €4.7 billion in H1, up by 90.2% compared to last year. The company's ROE reached 16.7% from 12.7% in 2022, with a six-month EPS at €11.4 versus a result of €5.77 in H1 2022.

Cross-checking Wall Street comps, at the net profit level, there was an 8% beat to consensus and was mainly driven by P&C. Overall, Allianz's operating profit reached €3.78 billion and beat cons. by 4%. EBIT increased by 7.1% on the abs value, thanks to the P&C segment and the Insurance Service results. While Life & Health operating profits were a miss predominantly driven by contractual service margin release, and again, Allianz's asset under management division missed consensus by 3% given lower AUM and higher cost/income ratio.

Mare Ongoing Upside

Following Allianz's 10-year financial indicators , we report the three critical metrics development:

1. The company's combined ratio improved by 0.4% to 92.2% (vs last year's results at 92.6%). This was supported by discounting benefits and lower claims from natural cats. On a negative note, this result was partly offset by higher inflation costs related to claims and a 0.1% higher expense ratio (Fig 1);
2. Allianz reinvestment yield reached 4.6% thanks to the interest rate environment changes. This was above the previous year's level thanks to higher yield. The operating investment results evolution is critical to note and in line with our previous coverage. Allianz reached operating profit results of €708 million, which was up by 19% vs. Wall Street analysts (Fig 2);
3. The company's solvency II ratio was 208% versus Q1 2023 and FY 2022 of 206% and 201%, respectively. Looking at the details, Allianz shareholders' equity decreased by €2.5 billion; and the company increased its financial strengths. Significant drivers were operating profit evolution, but we should include €4.5 billion dividend payment and an ongoing buyback for €0.4 billion announced in May (Fig 3).

Fig 1

Fig 2

Fig 3

Conclusion, Valuation, and Risk Statement

No changes in the company's guidance, and following Allianz H1 results here at the Lab; we anticipate a positive share price reaction given the stronger operating profit beat. In our view, the positive momentum of P&C pricing and the solid Solvency ratio cannot go unnoticed. With a 208% SII ratio, one of the investor's concerns has been removed from the negative list. According to our estimates, Allianz might also announce a new buyback plan while increasing its DPS from €11.40 to €12.40 in 2024. Given the company's financial performance and yearly outlook with operating profit at approximately €14 billion, our 2023 EPS estimates reached €23.5. Continuing to value Allianz with a P/E of 10x (in line with the five-year historical average), we increased our buy rating target from €22 0 to €235 per share ($26 in ADR).

Regarding the risk, the company's extensive investment portfolio brings exposure to equity/bond & govies markets. In addition, Allianz has other asset classes exposure to real estate and private equity. Operationally, Allianz divisions are exposed to potential natural catastrophes threat. Other downside risks include regulatory changes and higher funds provision, as happened with AllianzGI U.S. Structured Alpha.

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