Allianz pads reserves as claims inflation beats estimate to hit 6%

Allianz is currently seeing roughly 6% inflation in claims costs on average across its portfolios and has had to inflation load its reserves in addition to actions being pressed across the board on pricing, CFO Giulio Terzariol has declared.

“Six percent is what is on average what we see in the book,” Terzariol told his company’s Q2 earnings call with investors.  “This number is a couple percentage points higher than wat we were expecting.”

While Terzariol insists that  Allianz remain ahead of inflation with insurance rates being taken, the overshoot on economic inflation did force  Allianz to pad its reserves.

“We have a good 1 percentage point of reserve which are set aside specifically for potential future inflation we are going to see,” Terzariol said of actions taken to date in 2022. The inflation load had covered “a pretty widespread” swath of business “across the different entities and across the different lines of business.”

Inflation loading to reserves does not mean  Allianz has fallen behind the pricing curve quite yet.

“A lot of this growth is driven by pricing,” Terzariol said of 11% adjusted revenue growth for the P&C segment. “This should give you an idea of the effort we are putting in.”

But pricing efforts to need to address a gap between prior inflation expectations and YTD claims performance, he indicated.

“As we go into the second part of the year, rating increases are going to be even more pronounced,” he said of the fight against inflation.  “Certain cases” require rate increases “not just to match inflation, but also catching up a little bit on the gap.”

Allianz grew P&C segment revenues by 16.2% year on year in the second quarter or 11.1% when adjusted chiefly for FX rate differences. The combined ratio came down by 0.3 percentage points to 93.6% thanks to a 1.6 percentage point lower nat cat impact and a higher run-off rate on prior year developments.

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