First half of 2008: Good results in a tough environment

Premium income rose 6.1 percent in the first half of 2008, to 14.0 billion euros. The growth came from a 15.1 percent increase in revenues in life insurance, to 6.7 billion euros. In the one-time premium business, the full financing of pension commitments to employees under contracts with corporate customers contributed to the rapid growth. The fourth increase in "Riester" pension plans and successes in the sale of "Basis-Rente" pensions helped business in ongoing premiums.

In property and casualty insurance, revenues decreased 1.0 percent to 5.8 billion euros. The principal reasons were the continuation of earnings-oriented subscription policies amid intense competition on price, and the declining average premiums in car insurance because many clients qualified for lower-priced claim-free categories. Direct insurer Allianz 24 performed well.

Premium income in private health insurance was down 0.6 percent to 1.6 billion euros, because premium adjustments as of January 1 of this year were less than half the level from a year earlier.

Gross administrative expenses were down 7.1 percent, to 680 million euros, because of savings from the reorganization of business operations. Gross acquisition expenses, by contrast, grew 11.9 percent to 1.2 billion euros. In addition to a large volume of new business in life insurance, this figure was affected by lower relief from the capitalization and amortization of acquisition costs. The reason is a baseline effect from last year, when the accounting principles for life insurance were revised.

In property and casualty insurance, the first half saw high loss charges for claims resulting from the many rain and hail storms. Allianz Deutschland AG currently expects to pay out approximately 325 million euros to clients for their roughly 250,000 claims. The charge against profits, after allowing for amounts from reinsurers, was 280 million euros – more than last year, when hurricane Kyrill and the Whitsunday storm caused substantial damage. As a consequence, the combined ratio was down 1.1 percentage points, to 98.6 percent, even though the expense ratio by itself improved 2.1 percentage points, to 25.6 percent.

The operating profit was up 20.6 percent, to 1.1 billion euros. A particular reason for the large increase was capital gains on the sale of real estate occupied by the Company itself. Stock portfolios were also pared back further in the first half. The gains here made a significant contribution toward doubling the net income for the half to 1.5 billion euros.

During the first half of 2008, while trading prices were more propitious, Allianz Deutschland AG reduced its stock exposure in all divisions, in favor of fixed-interest securities. Gains from stock sales and hedges compensated for most of the write-downs of stock investments.

"We never had U.S. mortgages (subprime mortgages) on our books at any time," says Rupprecht. The investment portfolio at the end of June came to 177.3 billion euros. It generated net investment income of 4.2 billion euros, a 13.8 percent increase.

The service territories in Northern and Southeastern Germany are now operating under the new business model, and the Southwest is just about to introduce the new procedures. "We're now past the technical startup problems of a pilot run," Rupprecht explains. "But it will still take a while until we can exploit all the productivity advantages, because many of our employees have to get familiar with ways of working that have been changed in fundamental ways."

The planned downsizing was already 90 percent complete by the end of June. "We assume we can complete the process before the hardship prevention plan expires at the end of 2009," Rupprecht emphasizes.

The exclusive sales organization of Allianz Beratungs- und Vertriebs-AG is Allianz Deutschland AG's most important sales channel. As a way of permanently strengthening this sales channel, Allianz counts on varying its market presence by expanding new sales formats.

These include having agencies specialize in corporate customers, and making targeted approaches to clients in specific ethnic groups. Additionally, a number of agency centers have been set up with professional office teams, where multiple agents can handle their administrative work.

Early in July, Allianz presented two products that were entirely new to the German market: Invest4Life, a true provision and investment concept for those of retirement age, and animal health insurance for dogs and cats.

Competition remains very intense in property and casualty insurance. For that reason, sustainable business will remain our priority for the second half. Almost every German citizen recognizes that private retirement coverage is a necessity, but the current situation in the capital markets has worried many, making them hesitant to sign for fund-based products in particular.

"In the future we'll continue our conservative investment strategy so as to generate the highest possible return while limiting risk," Rupprecht emphasizes. "Life insurance in particular, because of its long-term investment horizon, is especially well suited to cushion fluctuations in the stock market and ensure reliable benefits for clients." In private health insurance, the market environment will remain difficult. But the introduction of the Health Fund, and the expected increase in contributions for the public health insurance system, might lead to a surge in private full-coverage health insurance.

Despite the uncertainties, Allianz Deutschland AG still expects revenues to rise and profits to be satisfactory for the year as a whole.

Allianz's new business model will be fully introduced in Germany by year's end. "By the middle of next year, the strengths of a customer-focused, multi-line service organization will be fully realized, and both clients and agents will be able to enjoy the full benefits," says Rupprecht.

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