EUR 850.00 For Business Accounts Only

Morningstar | Decent Third-Quarter Results From Allianz, but Shares Still Overvalued

We think Allianz reported pretty good numbers for the third quarter of 2018. These included EUR 30.5 billion in revenue, an increase of just under 8.0%, and operating profit of EUR 3.0 billion, growth of 20%. This growth in operating profit has mainly been driven by the property and casualty business that reported an operating profit of EUR 1.5 billion, and this business unit continues to impress us and the market. We maintain our EUR 175.0 fair value estimate and no-moat and stable moat ratings but still think the market is paying up for a franchise that barely earns its cost of equity.

The property and casualty business has predominantly been driven by the three businesses of Germany, Italy, and France, and these countries generate some of the best combined ratios across the Group. This is mainly driven by claims rather than expenses. The German business is driven by motor and property, across both commercial and retail and while natural catastrophe impact for the quarter has dropped to 200 basis points within the Group wide 93.1 combined from 450 basis points within the 96.9% combined in the comparable, we still think the 0.66 loss ratio of the German unit is impressive.

The current and reinvestment yields within property and casualty are 67 basis points and 200 basis points, respectively. So take note, Allianz continues to improve profitability of investment income.

The asset management business has also posted a decent performance with operating profit buoyant at EUR 650 million. This has been driven by third-party assets under management growth of EUR 23 billion to EUR 1.49 trillion with net flows of EUR 15 billion. We are a little disappointed with the balance of this growth. For example, growth in assets at PIMCO are up only 1.3%. The overall third-party asset management business revenue is being driven by a slight improvement in third party AUM margin excluding performance fees that we find encouraging. But, I guess we just want to see PIMCO get a more sustainable and better footing. However, some continued uncertainty may drive a lower share price as we think the market has a tendency to focus on the quality of this franchise. And that could provide investment opportunity.