Allianz profit plummets 78% as multibillion-dollar fund blowup hits

Global insurance giant  Allianz is ready to move forward from its multibillion-dollar Structured Alpha funds fiasco even if it means a massive blow to its earnings at the very start of the year. The insurer has taken a €1.6 billion hit to its first quarter profits after booking  another €1.9 billion to cover expected expenses at its funds arm.

The company’s chief executive officer Oliver Bäte (pictured) said it has “worked hard to achieve fair settlements with investors in the Structured Alpha funds in the US and move toward a final resolution.”

The new provision comes on top of the €3.7 billion set aside in the 2021 financial statements to cover settlements with major investors in those funds as well as various expenses related to the pending court and governmental proceedings in the US, bringing the total to €5.6 billion.

Allianz reported a net profit of merely €0.6 billion in the first quarter, down 78% from previous year’s €2.6 billion. The pre-tax provision of €1.9 billion related to the Structured Alpha proceedings reduced the group’s Q1 net profit by €1.6 billion euros.

However, excluding the provision, net profit was €2.2 billion, still down 16% mainly due to a lower non-operating result.

The total revenues rose by 6.2% to €44 in Q1 2022, with internal revenue growth of 3.8% driven by all business segments.

The property and casualty business segment benefited from higher prices and volumes while the asset management business recorded higher assets under management-driven revenues, management claimed. Increased sales in the US and Germany contributed to revenue growth in the life/health business segment, it added.

Bäte said: “The results of this quarter demonstrate that our business can withstand significant geopolitical and economic pressures. This is matched by the strength of our people.”

He also highlighted that Allianz has taken “clear business decisions” in response to the Russian invasion of Ukraine.

“Even in a quarter marked by severe economic and geopolitical challenges, we maintained our first-quarter operating profit close to the strong level of the prior year,” chief financial officer Giulio Terzariol said. “We have achieved nearly a fourth of our full-year target, which shows our operating performance remains on track.

“We confirm our full-year outlook of operating profit of 13.4 billion euros,  plus or minus 1 billion euros.”

Moody’s Investors Service analyst Christian Badorff thinks the extra provision for Structured Alpha funds is “good news” as it provides “a high degree of certainty” around the ultimate financial impact of the issue.

“This will allow Allianz to focus on its underlying operating performance going forward, which continued to be strong across all segments, despite headwinds from investment losses related to Russia and Ukraine and higher natural catastrophe losses,” Badorff said.

“The increase in interest rates is supportive of future earnings, but the expected positive impact on the Group’s Solvency II ratio - which was lower than expected - was more than offset by several factors, including the heightened level of market volatility,” he added.

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