(Updates with CFO comments in seventh paragraph.)
Nov. 11 (Bloomberg) -- Allianz SE, Europe’s biggest insurer, posted a bigger-than-estimated 84 percent drop in third-quarter profit after writedowns on Greek government debt and investments in financial companies.
Net income fell to 196 million euros ($267 million) from 1.26 billion euros a year earlier, the Munich-based insurer said in a statement today. That compares with the 660 million-euro average estimate of 20 analysts surveyed by Bloomberg.
Allianz said non-operating impairments totaled 931 million euros, including losses on investments in banks and insurers and a 122 million-euro writedown on Greek debt. That helped almost double the firm’s tax rate. The insurer, led by Chief Executive Officer Michael Diekmann, 56, reiterated its full-year operating profit target of 7.5 billion euros to 8.5 billion euros.
“Everybody was expecting the additional Greek loss, but the quarter’s equity writedowns were a real hammer,” said Konrad Becker, a Munich-based analyst at Merck Finck & Co. “What also hit the bottom line was the unexpectedly high tax rate, but since all that doesn’t affect the operating profit, their full-year target remains well within reach.”
Allianz rose 2.6 percent to 74.07 euros at 10:23 a.m. in Frankfurt, paring this year’s decline to 17 percent and cutting the firm’s market value to 33.6 billion euros. The 28-company Bloomberg Europe 500 Insurance Index dropped 15 percent over the same period.
Operating profit stood at 5.87 billion euros in the first nine months of the year. The measure fell 7.3 percent to 1.91 billion euros in the third quarter, beating analysts’ estimate of 1.7 billion euros.
“We remain committed to achieving our operating profit target for 2011,” Chief Financial Officer Oliver Baete said. Allianz may pay out more than its usual target of 40 percent of profit as a dividend for this year because of the current market environment, he said on a conference call.
Non-operating losses from investments in Commerzbank AG, Hartford Financial Services Group Inc., UniCredit SpA, China Pacific Insurance Group Co., Banco Popular Espanol SA and other financial assets totaled about 817 million euros, Allianz said.
The company booked 213 million euros in revaluation losses on warrants of U.S. insurer Hartford, in which Allianz invested $2.5 billion via subordinated debt, shares and warrants in 2008.
Allianz’s effective tax rate surged to 60 percent from 34.4 percent a year ago as impaired investments were largely excluded from the tax consideration, the insurer said.
“The market didn’t expect the tax rate increase,” CFO Baete told reporters on a conference call. “The reason behind this is that we hold a number of investments in regions where our tax effects are lower.”
The company posted a capital gain of 167 million euros from selling shares of Chinese lender Industrial & Commercial Bank of China Ltd., Allianz said.
Allianz’s solvency ratio, a measure of an insurer’s ability to absorb losses, fell to 179 percent at the end of September from 180 percent three months earlier.
Allianz’s 413.5 billion-euro fixed-income portfolio included 25.6 billion euros of Italian government bonds and 5 billion euros of Spanish sovereign debt at the end of September, the insurer said. Greek government bonds were valued at 497 million euros after Allianz wrote them down to 38.9 percent of their nominal value.
Insurers’ profitability has come under pressure as low interest rates on sovereign debt issued by countries such as Germany and writedowns on Greek bonds weigh on investment returns. Some insurers have hedged against lower rates and declines in equity markets to support earnings.
Zurich Financial Services AG, Switzerland’s biggest insurer, posted a bigger-than-estimated third-quarter profit of $1.24 billion yesterday as lower German interest rates and a drop in U.K. equities produced a hedging gain of $720 million. Munich Re, the world’s biggest reinsurer, earlier this week reported a 63 percent decline in quarterly profit as currency effects weighed on earnings.
--With assistance from Mariajose Vera in Munich and Rajiv Sekhri in Frankfurt. Editors: Dylan Griffiths, Jon Menon.
To contact the reporter on this story: Oliver Suess in Munich Bureau at firstname.lastname@example.org
To contact the editors responsible for this story: Frank Connelly at email@example.com Edward Evans at firstname.lastname@example.org