The European sovereign debt crisis continued in 2011, causing increasing uncertainty on the markets in the course of the year. As a result, volatility on global stock markets increased considerably and put additional pressure on share prices in general. Until April 2011, solid company earnings appeared to compensate for concerns about the ongoing debt crisis, with some markets recording double-digit gains. However, the tide turned in the second half of the year and European equity markets dropped sharply as worries grew that the debt crisis could not be contained within the E.U.'s periphery.
The low interest rate environment following the sovereign debt crisis persisted, which continued to have a negative impact on financial institution results and related outlook for the near term. Insurers also continue to be impacted due to the guarantees provided in many of their products. Given the continuing global deleveraging, the markets are expecting low interest rates to continue and industry returns to remain at modest levels, which is also being reflected in share price developments.
For the year, the EURO STOXX 50 was down 17.1% and the DAX fell by 14.7%. Within the financial services sector, although all sectors were down for the year, insurance stocks performed relatively better than the banking index. The STOXX Europe 600 Insurance index decreased by 13.7% in 2011 while the STOXX Europe 600 Banks index dropped by 32.5%, reflecting the worsening sentiment around bank stocks in particular.
Unfortunately, Allianz was not immune from the impacts of the changing sentiment for banks. During August 2011, several European countries - excluding Germany - introduced a temporary ban on short selling of financial stocks. As a consequence, Allianz was one of the few big financial institutions in the Eurozone which could be targeted by short-sellers seeking to benefit as the crisis escalated in the second half of the year.