Pimco’s $27 Billion Cash Boost Fails to Lift Allianz Profit

(Bloomberg) -- Allianz SE's second-quarter profit was battered by virus-related claims and falling fees, neutralizing a boost in assets at its Pacific Investment Management Co. unit.

Group operating profit at Allianz fell 19% to 2.57 billion euros ($3.1 billion), hit by lower fees in asset management and insurance costs, the company said on Wednesday. The overall backdrop hurt earnings even as Pimco's clients plowed 23 billion euros into the money manager after pulling the most cash in five years in the prior quarter.

Allianz's business model has been delivered a twin blow, as the coronavirus upends insurance companies and active asset managers are increasingly squeezed by passive rivals. While the surge in claims from the pandemic has been softened by Pimco's rebounding inflows, Allianz's two asset-management divisions saw profits drop as performance fees shrank and costs spiked.

“The pandemic continues to be a challenge for all industries,” Chief Executive Officer Oliver Baete said in a statement. The company is “confident that we will see a solid financial performance also in the second half of 2020.”

As the market rout reversed in the second quarter, Pimco saw strong inflows into strategies such as investment-grade credit, high yield bank loans and private funds, Allianz said. At the smaller Allianz Global Investors business, clients added cash to its multi-asset and fixed-income products.

The new money helped Allianz's total third-party assets under management surge by 101 billion euros to 1.66 trillion euros. Yet, operating profit in asset management overall fell by 5.7% on the lower fees and higher expenses.

Allianz was down 0.75% in Frankfurt trading at 180.16 euros as of 2:02 p.m. The stock has declined more than 17% this year, giving the company a market value of about 75 billion euros.

Virus Hit

The virus crisis had a negative impact of 500 million euros on earnings at the insurance business in the second quarter after a 700 million euro hit in the first three months of 2020. The combined ratio at the insurer's property & casualty business worsened by 1.2 percentage points to 95.5%. A ratio of more than 100% means claims and expenses exceed revenue from premiums.

“The impact of Covid-19 on the property-casualty business segment revenues has been more pronounced in the second quarter of 2020 but our franchise has proven resilient in terms of revenue growth,” said Giulio Terzariol, chief financial officer at Allianz.

The coronavirus is hitting insurers from multiple sides. Many companies face an increased volume of claims and see their investment portfolios at risk because of the rout in some markets. Allianz also has to deal with legal challenges as well. It was sued by a U.S. pension fund that claims AllianzGI pursued a “reckless strategy” amid the coronavirus pandemic that led to $774 million in losses. The company rejects the claims.

Tobias C. Pross, who took over as CEO at AllianzGI earlier this year, has signaled he is considering acquisitions to gain an edge. “We certainly want to play an active role in consolidation where it makes sense for our business and for our clients,” Pross said in an interview in May. That could be the case in areas such as private markets and in Asia, he said.

No Forecast

Allianz withdrew its 2020 earnings forecast in April, citing economic uncertainty caused by Covid-19. It still paid a dividend for 2019 despite European Union regulators calling on insurers to preserve capital. While the company hasn't set new targets, it's certain to report an operating profit in 2020, Terzariol said in a Bloomberg TV interview.

S&P Global Ratings warned in a July 13 report that a second wave of covid 19 could eat into insurers' capital. “Buffers will erode through the second half of the year as financial market losses and insurance claims pile up,” it said.

The pandemic's impact on the insurance industry is going to be three times greater than that of the last financial crisis, with premium income expected to drop by 3.8% this year, Allianz said in its global insurance report last month. The global premium pool will shrink by about 360 billion euros compared with the pre-Covid growth trend, according to the report.

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