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AGCS COR rises to 117.8% amid ‘significant impact’ from Covid-19

Allianz’s specialty unit sees 20-point year-on-year deterioration in quarterly loss ratio

Allianz Global Corporate & Specialty (AGCS) suffered a “significant impact” from Covid-19 during the first quarter, with the unit’s combined ratio deteriorating to 117.8%. 

The decline - the worst in the Allianz Group - represented a deterioration of 17.8 percentage points on the first quarter of 2019, with AGCS posting an operating loss of €141m ($152.8m) for the quarter.

AGCS saw its loss ratio rise 20.3 percentage points to 88.4% during the quarter, partially offset by a 2.4 percentage point reduction in its expense ratio to 29.2%.

The segment saw 3% organic growth in revenue to €3bn,on the back of average rate increases of 16.1% during the quarter.

AGCS was one of several units to absorb Covid-19 losses during the quarter. At group level, Allianz reserved for €700m of Covid-19 losses, of which €400m were through its property/casualty (P&C) operations.

The insurer did not disclose how these losses were split across its segments but did break down the reserving charge into €200m of entertainment-related losses, which will be incurred through AGCS, and €200m related to business interruption and business closure across its property/casualty business. Allianz also disclosed €100m of losses related to its credit insurance subsidiary, Euler Hermes, and travel claims. These were partially offset by a €100m reduction in motor claims frequency.

AGCS and Euler Hermes are both expected to see further Covid-19 claims in subsequent quarters, Allianz said. During the group's first-quarter earnings call, Allianz revealed AGCS' entertainment losses will likely double during the remainder of the year.

The group’s P&C reinsurance business saw revenue contract 2% to €2.6bn in the quarter, with operating profit down 64% to $59m.

The segment’s combined ratio deteriorated 7.5 percentage points to 97.9%.

Allianz posted a first-quarter combined ratio of 97.8% across its P&C operations, a 4.1 percentage point deterioration driven by the impact of Covid-19. P&C operating profit was down 29% to €1bn.

Giulio Terzariol, Allianz’s chief financial officer, said the group’s underlying P&C combined ratio remained stable at 94% when adjusted for the impacts of Covid-19 and natural catastrophes.

At group level, Allianz reported operating profit of €2.3bn for the quarter. Allianz had previously withdrawn its full-year operating profit target of between €11.5bn and €12.5bn due to the uncertainties around Covid-19.

UBS analysts said Allianz’s first-quarter results highlight how 2020 will be a “tough but manageable year”, with the group missing analyst consensus on its combined ratio but beating on its expense ratio.

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