Allianz warns of €1bn profit wipeout from Covid-19
German insurance group expects wave of claims related to pandemic
Allianz has warned that the fallout from the coronavirus pandemic is likely to wipe out more than €1bn profit this year as the German insurance group braces for a wave of claims.
The company set aside €400m in the first quarter to cover payouts, largely related to cancelled events and disruption to business caused by the efforts to contain the virus.
“We will definitely see additional headwinds in the future,” chief financial officer Giulio Terzariol told journalists on Tuesday, adding that insurance-related losses could dent its operating profit by 10 per cent, or about €1.2bn.
John Neal, the boss of Lloyd’s of London, last month warned that the pandemic was set to be the costliest event in history for the insurance industry, dwarfing other major disasters such as Hurricane Katrina in 2005 and the 9/11 terror attacks.
Alongside the claims, the turmoil in financial markets could also prove a drag to insurers if it saps the income streams they use to help make payouts.
“There is really a lot of uncertainty,” Mr Terzariol said of the market turmoil. Recent experience has shown that “things can change completely within a week”.
Allianz said it needed more time to come up with a new full-year profit target after scrapping its existing one late last month.
Shares in the company were down almost 3 per cent in early afternoon trading on Tuesday, lagging the German stock market.
One unwelcome surprise for investors was a bigger-than-expected fall in Allianz’s solvency II ratio, a key indicator of balance sheet strength. It fell by 23 percentage points to 190 per cent, worse than the 197 per cent expected by analysts.
Mr Terzariol did not rule out that the ratio may slide below the group’s minimum threshold of 180 per cent later this year.
“This really depends on how share prices, interest rates and spreads on government bonds will behave,” he said. A drop below Allianz’s minimum target “would not be problematic” as the group had more than €30bn in capital reserves to absorb additional shocks, he added.
The first quarter also saw the group’s operating profit suffer a 22 per cent drop to €2.3bn, driven by a 29 per cent decline at its property and casualty insurance business and a 25 per cent fall in life and health insurance.
Pimco, the bond fund owned by Allianz, suffered the worst outflows in five years at the start of the year as retail clients pulled €43bn during the first quarter. Despite the outflows, the operating profit of Allianz’s asset management arm rose 19 per cent from a year ago