The FINANCIAL -- Allianz Group delivered 10.8 billion euros in operating profit in 2016, near the upper end of its target range and the fifth consecutive increase in annual operating results.
Net income attributable to shareholders rose 4.0 percent compared to 2015, leading Allianz to raise its dividend further to 7.60 euros. Allianz will also launch a 12-month share buy-back plan worth up to 3 billion euros, representing around 4.2 percent of its share capital. Allianz, Europe’s largest insurer by market value, saw further progress in implementing its Renewal Agenda in 2016, putting the company well on track to achieve its 2018 targets.
The Life and Health segment saw the strongest rise in operating profit – up 9.3 percent to 4.1 billion euros – with rising investment results as the key driver. The new business margin rose to 2.7 percent in 2016 compared to 2.2 percent in 2015, demonstrating Allianz’s ability to implement strategic changes swiftly and profitably in response to the low interest rate environment.
The Property and Casualty segment saw operating result ease 4.2 percent in the year mainly due to weaker investment results, even as its underwriting performance improved. The segment’s combined ratio, which measures underwriting profitability, improved 0.3 percentage points to 94.3 percent due in part to lower claims from natural catastrophes.
The Asset Management segment marked an important milestone as PIMCO generated two consecutive quarters of third-party net inflows in the second half of 2016. A 6.1 percent increase of total assets under management (AuM) to 1,871 billion euros at year-end was mainly due to positive market effects. A decline in AuM driven fees and performance fees, however, led to a 4.0 percent decrease in operating profit. Cost discipline led to an improvement in the cost-income ratio to 63.4 percent from 64.5 percent for the segment, according to Allianz Group.
“Allianz had a great year in 2016, with efforts invested in our Renewal Agenda starting to bear fruit. All segments delivered well, thanks to the engagement of our excellent people, and our robust capital base puts us in a position of strength,” Oliver Bäte, Chief Executive Officer of Allianz SE, said.
“The year was filled with surprises, not all of them welcome, that challenged many assumptions, fueled geopolitical uncertainty and market volatility, and that make 2017 difficult to predict. Nevertheless, we feel confident enough to raise our operating profit target range. The group aims to achieve an operating result of 10.8 billion euros, plus or minus 500 million euros, in 2017, barring unforeseen events, crises or natural catastrophes,” Oliver Bäte stated.
Allianz returns unused capital to shareholders
Allianz SE has decided to launch a share buy-back program with a volume of up to 3 billion euros as part of a previously announced plan to return unused capital from the group’s budget for external growth from the period 2014 to 2016. Based on the closing price of 156.85 euros per share on February, 10, 2017, this would represent approximately 19.1 million shares or 4.2 percent of share capital.
The share buy-back program is envisaged to start on February 17, 2017 and last no longer than 12 months. Allianz SE will cancel repurchased shares and regularly publish updates on the program. The full implementation of the program as scheduled is subject to a minimum sustainable Solvency II ratio of 160 percent.
Capital management becomes more flexible
Through capital management, Allianz Group aims for a healthy balance between an attractive yield and investment in profitable growth. In 2014, Allianz Group adjusted the payout ratio to shareholders to 50 percent of net income attributable to shareholders. The Group also set aside 20 percent of net attributable income each year for external growth and aimed to pay out any unused portion of this budget every three years starting at the end of 2016.
The Board of Management and the Supervisory Board have now decided to simplify Group capital management to make it more flexible. In future, 50 percent of Group net attributable income will still be returned to shareholders in the form of a regular dividend. Allianz also aims to keep the regular dividend per share at least at the level paid in the previous year.
However, Allianz no longer intends to link its budget for external growth to shareholder pay-outs in a three-year cycle. Rather, half of net income should be used as deemed appropriate to finance growth, or it will be returned to shareholders on a flexible basis. This remains subject to a sustainable Solvency II ratio above 160 percent1.
Group: Life and Health performance drives 2016 income growth
2016 EPS up 4 percent to €15.14
Operating profit in 2016 rose 0.9 percent compared to one year ago to 10.8 billion euros, near the upper end of the target range. Net income growth was driven by a 9.3 percent improvement in operating profit in the Life and Health segment, largely due to an increased investment margin. The non-operating loss was unchanged compared to one year ago, including the negative impact from the sale of the South Korean business. Overall, net income attributable to shareholders grew 4.0 percent to 6.9 billion euros. Basic Earnings per Share (EPS) rose 4.0 percent to 15.14 euros. Return on equity was at 12.0 percent in 2016 (2015: 12.5 percent), as capital strength grew faster than earnings.
4Q operating profit up 9.3 percent to €2.8bn
Operating profit increased 9.3 percent to 2.8 billion euros in the fourth quarter, largely due to a stronger underwriting result in the Property and Casualty segment, where operating profit rose 16.4 percent.
4Q net income up 23.0 percent
An improved non-operating result also supported the increase in net income attributable to shareholders, which rose 23.0 percent to 1.7 billion euros in the fourth quarter. Basic Earnings per Share (EPS) in the quarter increased to 3.83 (3.12) euros.
Solvency II capitalization ratio 218 percent at year-end
The Solvency II capitalization ratio rose to 218 percent at the end of 2016 compared to 200 percent on December 31, 2015. This was primarily due to operating capital generation and the sale of our Korean life insurance operations.
2016 management assessment
“Allianz enjoyed a stellar finish in 2016 despite tough market conditions, leading management to propose another dividend increase. The company recorded its fifth consecutive rise in annual operating profit, supported by continued positive developments in all business segments and putting the group on track to meet its 2018 Renewal Agenda targets,” said Dieter Wemmer, Chief Financial Officer of Allianz SE.
Property and Casualty insurance: 2016 internal growth stays strong
Full Year 2016 internal growth at 3.1 percent
In 2016, gross premiums written held steady at 51.5 (51.6) billion euros. Adjusted for foreign exchange and consolidation effects, internal growth was strong at 3.1 percent, mostly driven by positive developments in Turkey, Germany, and at Allianz Worldwide Partners. Operating profit for 2016 eased 4.2 percent to 5.4 billion euros compared to 2015 due to lower investment income. The combined ratio for the full year improved by 0.3 points to 94.3 percent.
4Q gross premiums written up 2.4 percent
Gross premiums written rose 2.4 percent to 11.2 billion euros in the fourth quarter in the segment. Adjusted for foreign exchange and consolidation effects, internal growth was 3.6 percent, driven by a positive volume effect of 2.0 percent and a positive price effect of 1.6 percent.
4Q combined ratio better at 94.0 percent
Operating profit increased 16.4 percent to 1.4 billion euros in the fourth quarter compared to the same quarter in the previous year in the segment. The underwriting result improved, benefiting from lower claims from natural catastrophes and large losses. The combined ratio improved 2.3 percentage points to 94.0 percent.
4Q management assessment
“Growth improved in Property and Casualty in the quarter with both volume and price contributing to a better result. Allianz Worldwide Partners and Turkey helped to drive growth, as did Germany,” said Dieter Wemmer. “We are moving steadily toward our goal of a 94 percent combined ratio by 2018.”
Life and Health insurance: 2016 investment margin drives rise in operating profit
Full Year 2016 shows sustainable gains in new business margin
In Life and Health insurance, operating profit for the year increased 9.3 percent to 4.1 billion euros. This was driven by a higher investment margin. The targeted shift toward capital-efficient products was reflected in the rise of the new business margin to 2.7 percent for the full year. As a result, the value of new business (VNB) rose 21.7 percent to 1.4 billion euros compared to 2015.
4Q operating profit €1.1bn
Operating profit decreased 1.7 percent to 1.1 billion euros compared to the prior-year quarter in the segment, partly due to increased policyholder participation in Germany, offset by the higher investment margin in the United States.
VNB €420mn and NBM 2.9 percent in 4Q
The value of new business (VNB) increased 6.4 percent to 420 million euros in the quarter. The new business margin remained stable at 2.9 percent. Due to changes in strategy, premiums shifted to capital-efficient products, but lower market yields weighed on results.
4Q management assessment
"Allianz is quickly switching toward Life products that can produce better returns for customers. This strategic shift has benefited Allianz shareholders as well, as reflected in a new business margin of 2.9 percent in the last quarter of 2016,“ said Dieter Wemmer.
Asset Management: PIMCO flows stay positive in 4Q; efficiency improves
Full Year 2016 sees better cost-income ratio
Third-party assets under management (AuM) increased by 85 billion euros in 2016, mostly due to positive market effects. Operating revenues decreased 7.1 percent to 6.0 billion euros, mainly due to lower AuM driven fees, primarily affected by decreased fee margins. As expected, operating profit decreased 4.0 percent to 2.2 billion euros in 2016, as a decline in revenues could only partially be compensated by a reduction of operating expenses. Lower personnel costs at PIMCO contributed to an overall drop of 8.7 percent in operating expenses in the segment. The cost-income ratio (CIR) improved to 63.4 percent from 64.5 percent last year.
4Q operating profit at €640mn
Operating profit edged higher in the fourth quarter of the year, amounting to 640 million euros, as falling operating expenses more than compensated for lower operating revenues in the segment.
CIR at 61.4 percent in 4Q
The cost-income ratio (CIR) for the segment improved 1.7 percentage points to 61.4 percent in the quarter as cuts in operating expenses outpaced the fall in revenues. At PIMCO the cost-income ratio improved to 56.9 percent (4Q 2015: 60.2 percent).
3P net inflows at €1.7bn in 4Q
Compared to September 30, 2016, third-party AuM rose by 34 billion euros to 1,361 billion euros at the end of the fourth quarter, mostly due to favorable foreign exchange effects. The quarter saw third-party net inflows of 1.7 billion euros, driven by net inflows of 5.9 billion euros at PIMCO, partly offset by net outflows of 4.2 billion euros at Allianz Global Investors.
4Q management assessment
“The PIMCO turnaround is on track as the fourth quarter was the second consecutive reporting period with positive third-party net inflows. Cost cuts, especially in variable compensation, helped to make up for revenue declines and lift operating profit slightly in the quarter,” said Dieter Wemmer.