ALLIANZ SE

Rating Action & Rationale

Ethifinance Ratings affirms the Allianz Group's rating at AA-, maintaining a Stable outlook.

The rating is based on Allianz's leading position in the global insurance and asset management industries, its high level of diversification in terms of segments, business lines, and geographies, the strength of its brand, and the diversity and control of its distribution channels. This is complemented by a solid and stable operating performance, high profitability, robust regulatory capitalization, and good liquidity management.

However, the rating is constrained by macroeconomic risks, which, due to inflation, could impact the insurer's claims experience, as well as volatility in financial markets. The rating is also limited by a low performance of the "net earned premiums to equity" indicator and moderate leverage, which have been influenced primarily by a lower equity due to the downward impact of the transition to IFRS 9 accounting standards.

Executive Summary

The Allianz Group (hereinafter, Allianz) is a global provider of financial services operating in the insurance and asset management industries. In the insurance sector, it is the market leader in Germany and has a broad international presence. Additionally, it is one of the largest asset managers in the world, with €1.8 trillion in third-party assets under management as of March 31, 2024. 

Fundamentals

• Dominant position in the global insurance and asset management industries: World leader in the P-C insurance business and among the top five insurers in the L/H insurance business, as well as one of the largest asset managers in the world, with approximately €746 billion on behalf of its policyholders and €1.8 trillion in third-party assets as of March 31, 2024.
• High diversification across segments, business lines, and geographies: Operating income is distributed among P-C insurance (45%), L/H insurance (34%), and asset management (21%). Its key markets (in terms of premiums) are Germany, France, Italy, and the United States.
• High profitability and moderate efficiency: ROA ended 2023 at 0.9% (2022: 0.7%), exceeding the five-year average of 0.8%. Profitability indicators are at the higher end of the scale according to EthiFinance Ratings Insurance methodology. The combined ratio for P-C finished 2023 at 93.8% (2022: 93.3%), below the 2019-23 average of 94.5%, placing it in the middle range of the scale according to EthiFinance Ratings Insurance methodology. Its components, the loss ratio stood at 69.3% and the expense ratio at 24.6% at the end of 2023 (2022: 68.4% and 24.9%).
• Moderate leverage and high fixed-charge coverage: Financial leverage ratio ended 2023 at 40.9% (2022: 44.6%), above the five-year average of 36.9% due to reduced equity from unrealized investment losses, which have decreased but still persist. This ratio is rated in the middle range of the scale according to EthiFinance Ratings methodology. On the other hand, the fixed-charge coverage ratio improved, rising from 9.6x in 2022 to 11.8x in 2023, exceeding the 2019-23 average of 10.9x. This ratio is rated in the higher end of the scale according to EthiFinance Ratings methodology.
• Robust regulatory capitalization: The Solvency II capitalization ratio increased by 5 percentage points, from 201% in 2022 to 206% in 2023, supported by strong capital generation from business growth and a favorable impact from regulatory and model changes, which was partially offset by dividend distribution and share buybacks. This ratio is rated in the higher end of the scale according to EthiFinance Ratings methodology.
• Conservative capital allocation, although exposure to high-risk assets (equities) is higher compared to peers: As of December 31, 2023, the investment portfolio was composed of corporate bonds (27%), government bonds (25.5%), other debt securities (23.1%), equity instruments (6.5%), funds (10%), real estate (3.5%), and other assets (4.4%). Approximately 94% of the debt portfolio was investment-grade.

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Key Figures

Outlook

The Stable outlook of the rating is based on the expectation that the Group will maintain a dominant position in the global insurance industry, with solid and stable operating performance, supported by diversification across segments, business lines, and geographies. Additionally, capitalization is expected to remain at high levels due to adequate capital management.

Rating Sensitivities

Factors that could (individually or collectively) impact the rating:

-           Positive factors 

The rating could be upgraded by an improvement in the combined ratio, bringing it below 90%, a reduction in the net premiums-to-equity ratio to a moderate level of 105%, and lower financial leverage, continuously below 40%, while maintaining its leadership position in the global insurance industry, with high diversification and strong brand strength.

-           Negative factors

The rating could be downgraded due to lower profitability with a ROE below 8%, an increase in the combined ratio above 98%, a reduction in the interest coverage ratio below 6x, higher financial leverage exceeding 50%, and a decrease in regulatory capitalization to 190%. Additionally, a shift in capital management toward higher-risk investments or a deterioration in liquidity management could negatively impact the rating.

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Company Profile

Business model

The Allianz Group is one of the world’s leading insurers and asset managers, with approximately 125 million private and corporate customers in nearly 70 countries. Its clients benefit from a wide range of insurance services, including Property-Casualty insurance, Life/Health insurance, assistance services, credit insurance, and corporate insurance. Allianz SE, the parent company of the Allianz Group, is headquartered in Munich, Germany.

The Property-Casualty segment offers automobile, accident, property, general liability, travel insurance, and assistance services. The Life/Health segment provides savings and investment-oriented products, as well as life and health insurance. Allianz is the world's leading insurer in the P-C insurance business and ranks among the top five in the L/H insurance business. Its key markets (in terms of premiums) are Germany, France, Italy, and the United States. Most of its insurance markets are served by local Allianz companies. However, some business lines, such as Allianz Global Corporate & Specialty (AGCS), Allianz Partners (AP), and Allianz Trade, are managed at the global level.

Allianz is also one of the largest investors in the world, managing approximately €746 billion on behalf of its policyholders as of March 31, 2024. Its two main asset management entities, PIMCO and AllianzGI, operate under the supervision of Allianz Asset Management (AAM), managing approximately €1.8 trillion in third-party assets. Its key markets are the United States, Canada, Germany, France, Italy, the United Kingdom, and the Asia-Pacific region.

Total business volume, which includes gross written premiums and commission income from P-C, statutory premiums from L/H, and asset management revenues, amounted to €161.7 billion in 2023. 

Allianz has a high level of diversification across segments, which supports the recurring generation of income and profits. In 2023, the majority of revenues came from insurance activities, with 48% from the L/H segment and 47% from the P-C segment. The remaining 5% of revenues came from asset management. The operating margin for insurance activities in P-C and L/H stood at 9% and 7%, respectively, compared to 39% for asset management. As a result, operating income was evenly distributed between P-C insurance (45%), L/H insurance (34%), and asset management (21%).

Likewise, as a global provider of financial services, Allianz benefits from extensive geographic diversification, reducing the likelihood that its business will be severely impacted by potential disruptions in one or more of the markets in which it operates.

In the P-C segment, operating income was distributed as follows: Germany and Switzerland with 21%, Central and Eastern Europe with 8%, Western and Southern Europe with 21%, Asia-Pacific and Australia with 5%, Anglo-Saxon markets with 6%, Iberia and Latin America with 7%, and global insurance lines with 30%.

In the L/H segment, operating income was distributed as follows: Germany and Switzerland with 27%, Central and Eastern Europe with 9%, Western and Southern Europe with 29%, Asia-Pacific with 11%, the United States with 21%, and Iberia and Latin America with 3%.

Allianz's competitive position is strengthened by one of the most recognized brands in the insurance industry, demonstrating its leadership in numerous markets around the world. The Allianz brand is used in most of the Group’s business lines, with the exception of PIMCO.

The Group enjoys access to a variety of distribution channels in the countries where it operates. The L/H segment relies heavily on exclusive agents, particularly in Germany, which serves as its primary distribution channel. Other important distribution channels include brokers and bancassurance. Allianz has exclusive distribution agreements in various regions, for example, with HSBC in Asia for L/H insurance, with UniCredit in Italy for L/H and P-C insurance, with Commerzbank, Santander, and HypoVereinsbank in Germany for L/H and P-C insurance, and with BBVA in Spain for P-C insurance. Allianz is also developing new digital distribution models and its new pan-European direct insurance brand, Allianz Direct, which was launched in 2019 and is present in Spain, Germany, the Netherlands, Italy, and France.

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Financial Profile

Earnings and profitability

Total business volume

1. Total business volume, which includes gross written premiums and P-C commission income, statutory premiums from L/H, and asset management revenue, amounted to €161.7 billion in 2023, an increase of 5.5% from €153.32 billion recorded a year earlier. Over the past five years, the total business volume has grown at a compound annual rate of 4.1%. On average, 51% was attributed to statutory premiums from the L/H segment, 44% to gross written premiums and commissions from the P-C segment, and 5% to asset management commissions.
2. P-C segment total business volume reached €76.5 billion in 2023 (2022: €70.6 billion), showing an 8.4% growth. This included gross written premiums of €74 billion (2022: €68.2 billion) and commission income of €2.5 billion (2022: €2.4 billion). In real terms, there was an 11.2% growth, primarily due to a 6.9% increase in prices and a 4% rise in volumes.
3. L/H segment total business volume includes statutory premiums, encompassing gross written premiums from life and health insurance sales, as well as income from unit-linked (UL) sales and other investment products. The total business volume grew by 3.5%, from €75.3 billion in 2022 to €77.9 billion in 2023. In real terms, there was a 5.6% growth, mainly due to a strong increase in Fixed Index Annuities (FIAs) sales in the United States, despite a slight decline in Germany due to lower Single-Premium (SP) sales and in France, as well as a 5.7% decrease in Asia-Pacific due to reduced UL sales in Taiwan due to regulatory changes, and lower savings and Annuities sales in China.
4. Asset management revenue amounted to €8.1 billion in 2023 (2022: €8.2 billion), reflecting a 1.8% decrease. It comprised management fees of €7.1 billion (2022: €7.7 billion) and performance fees of €817 million (2022: €474 million), which accounted for 10.1% of total asset management revenue (2022: 5.8%). This segment's revenue decreased mainly due to a lower average level of third-party assets under management in both PIMCO and AllianzGI, despite higher performance fees, particularly at PIMCO. After significant declines in the markets in 2022, total assets under management reached €2.2 trillion in 2023, up from €2.1 trillion the previous year. Net inflows of AuM were €3.1 billion (2022: net outflows of €96.3 billion). Positive market effects and dividends totaled €130 billion.

The present value of new premiums reached €67.3 billion, an increase of 1.6% driven mainly by higher sales of FIAs in the United States and by Allianz Reinsurance, thanks to a major reinsurance contract in protection and health. The present value of new premiums by business line is detailed below:

Operating income

1. Allianz's operating income (including both insurance business and asset management) totaled €14.7 billion in 2023, an increase of 6.7% from €13.8 billion the previous year. Over the past five years, operating income has grown at a compound annual rate of 5.1%. On average, 42% was from the P-C segment, 35% from the L/H segment, and 23% from asset management.
2. P-C segment operating income (from insurance services and investment results) stood at €6.9 billion (2022: €6.8 billion), an increase of 1.2% due to higher investment results. Investment results totaled €2.7 billion (2022: €2.4 billion), reflecting a 13% growth. On the other hand, insurance services income was €4.2 billion (2022: €4.3 billion), showing a slight decrease. Although earned premiums grew by 7.5%, from €64 billion in 2022 to €68.8 billion in 2023, claims increased more significantly due to inflation and the impact of natural catastrophes. Claims amounted to €47.6 billion (2022: €43.7 billion), an 8.9% increase. Acquisition and administrative expenses were €16.9 billion (2022: €15.9 billion), rising by 6%. The combined ratio increased by 0.5 percentage points, from 93.3% to 93.8%, with a loss ratio of 69.3% (2022: 68.4%) and an expense ratio of 24.6% (2022: 24.9%). The combined ratio was below the five-year average of 94.5%, placing it in the middle range of the scale according to EthiFinance methodology.
3. L/H segment operating income (from insurance services and investment results) rose to €5.2 billion (2022: €4.2 billion), a 23.1% increase primarily due to improvements in claims and expenses, especially in France and Asia-Pacific, and higher operational investment results. Operating investment results significantly increased from an exceptionally low result in 2022 due to negative coverage impacts from variable annuities in the United States.
4. Asset management operating income totaled €3.1 billion (2022: €3.2 billion), a 2.2% decrease as the reduction in operating income exceeded the decrease in operating expenses due to a lower average level of assets under management. Administrative expenses were €4.9 billion (2022: €5 billion). The cost-income ratio remained stable at 61.3%.

Net result

1. Allianz's net income increased by 31.7%, rising from €6.9 billion in 2022 to €9 billion in 2023.
2. P-C net income amounted to €4.3 billion (2022: €3.4 billion), a 27.3% increase, primarily supported by higher non-operating income, which resulted from increased non-operating investment income due to favorable valuation and lower impairments.
3. L/H net income was €3.6 billion (2022: €3.2 billion), reflecting a 13.5% growth, driven by an increase in operating profit, which was partially offset by lower non-operating income. The non-operating investment income was affected by a negative impact due to the recognition of a provision for onerous contracts stemming from the expected loss in the sale of its commercial operations in Lebanon.
4. Asset management net income reached €2.4 billion (2022: €935 million). The €1.4 billion increase was mainly due to a rise in the provision for legal expenses related to Structured Alpha recorded in the previous year. Provisions of €2.8 billion and €1.6 billion were made in 2021 and 2022, respectively. Allianz GI US pleaded guilty in governmental investigations related to funds executing a complex options trading strategy known as Structured Alpha Funds. Investors in these funds, including pension funds, suffered significant losses in March 2020, exceeding 90% in some cases due to market volatility following the outbreak of the pandemic. It was determined that the Structured Alpha management team had deceived investors by manipulating reports to hide the true risk of the strategy, hence Allianz GI US is in the process of compensating fund investors for their losses.

Regarding profitability, Return on Assets (ROA) ended 2023 at 0.9% (2022: 0.7%), surpassing the five-year average of 0.8%. Similarly, the Return on Equity (ROE) was 15.1% at the end of 2023 (2022: 11.1%), above the average of 11.2% for 2019-23. The profitability indicators are positioned at the higher end of the scale according to EthiFinance methodology.

Investment portfolio

Total assets amounted to €983.2 billion in 2023, compared to €935.9 billion the previous year, marking an increase of €47.3 billion (or 5.1%), primarily driven by investments (+€30.8 billion) and financial assets from unit-linked contracts (+€11.8 billion).

Investments totaled €721.8 billion (2022: €691 billion), representing 73% of total assets (2022: 74%). These included investments at fair value through profit or loss amounting to €102.3 billion, investments at fair value through other comprehensive income totaling €562.7 billion, investments at amortized cost of €8.8 billion, investments in associates and joint ventures of €21.2 billion, investment property valued at €23.9 billion, and fixed assets from alternative investments of €2.9 billion.

Within investments at fair value through other comprehensive income, €534.7 billion (or 95%) were fixed-income securities, and €26.9 billion (or 5%) were equity securities. Changes in the fair value of these investments are recorded directly in shareholders' equity.

The total asset portfolio increased mainly in debt securities due to market movements. Approximately 94% of the debt portfolio was invested in investment-grade instruments. The government bond portfolio included bonds from France, Germany, Italy, and the United States, representing 13%, 12%, 10%, and 9% of the portfolio, respectively. The corporate bond portfolio included bonds from the United States, the eurozone, and Europe excluding the eurozone, representing 42%, 32%, and 12% of the portfolio, respectively. Exposure to equities decreased due to a reduction in volume.

Liabilities

Total liabilities amounted to €919.6 billion in 2023, up from €877.2 billion the previous year. Insurance liabilities totaled €776.9 billion (2022: €740.8 billion), accounting for 84% of the total liabilities. In the P-C segment, liabilities were €96.3 billion (2022: €91.6 billion), an increase of 5.1%. In the L/H segment, liabilities reached €680.7 billion (2022: €649.2 billion), rising by 4.9%. These changes were attributed to the Group's growth in both segments.

Allianz finances itself long-term with senior and subordinated bonds of various maturities. As of the end of 2023, the book value of senior bonds was €7.4 billion (2022: €8.1 billion) and the value of subordinated bonds was €17.5 billion (2022: €16.9 billion). Approximately 50% of senior bonds and all subordinated bonds had maturities longer than five years. The average interest rate on senior bonds was 1.6% (2022: 1.4%). The average interest rate was 3.7% (2022: 3.6%) for subordinated bonds classified as debt and 3% (2022: 3%) for subordinated bonds classified as equity.

Medium-term notes and commercial paper programs are available for short-term financing. Money market instruments remained at €1.1 billion. The average interest rate increased from 1.1% to 4.4%.

Investment liabilities totaled €49.7 billion, of which €39.5 billion were linked to unit-linked (UL) contracts and had a corresponding asset.

The financial leverage ratio concluded 2023 at 40.9% (2022: 44.6%), above the five-year average of 36.9% due to reduced shareholders' equity caused by unrealized investment losses. This ratio is rated in the middle of the scale according to EthiFinance methodology. The fixed-charge coverage ratio improved from 9.6x in 2022 to 11.8x in 2023, surpassing the average of 10.9x for 2019-23. This ratio is rated in the upper part of the scale according to EthiFinance methodology.

Solvency II

The Solvency II capitalization ratio increased by 5 percentage points, rising from 201% in 2022 to 206% in 2023. This improvement was supported by strong capital generation due to business growth and favorable impacts from regulatory and model changes. However, this gain was partially offset by dividend distributions and share buybacks. Over the past five years, the ratio has consistently remained above 200%, earning a high rating according to EthiFinance methodology.

The Group's shareholders' equity increased by 7.5%, rising from €54.4 billion in 2022 to €58.5 billion in 2023. Retained earnings grew due to the net profit attributable to shareholders of €8.5 billion in 2023. Out of this, €2.2 billion was used for share buybacks, and €4.5 billion was allocated for dividend payments in May 2023. Additionally, the positive variation of €23.3 billion in unrealized investment losses was driven by favorable financial market developments compared to the previous year. This was partially offset by the negative variation of €20.6 billion in unrealized gains from insurance contracts recognized in the income statement. Unrealized investment losses remain high due to interest rate hikes, amounting to €37.2 billion. Future interest rate reductions could help reduce or eliminate these losses, potentially boosting Allianz's equity.

Environmental, Social & Governance

As a global insurance and asset management entity, Allianz must incorporate sustainability issues to reinforce its strategy.

Allianz has demonstrated a strong commitment to environmental sustainability by setting ambitious goals to reduce its carbon footprint. The company has implemented policies to minimize the environmental impact of its operations and has invested significantly in renewable energy and clean technologies. However, it still faces challenges in fully transitioning to a carbon-free investment portfolio and in mitigating climate risks in its insurance products.

In the social realm, Allianz has been recognized for its efforts to promote diversity and inclusion within its workforce. The company has implemented programs to support employee well-being and has shown a strong commitment to local communities through various corporate social responsibility initiatives. Nevertheless, there are ongoing criticisms regarding the need to improve transparency and the actual impact of some of these initiatives in terms of tangible benefits for affected communities.

Allianz's governance structure is robust, with solid practices of transparency and accountability. The company has implemented strict policies to prevent corruption and promote business ethics. However, there are areas that require attention, such as the need to increase gender diversity on its board of directors and ensure that governance policies remain aligned with global best practices.

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Scorecard

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Financial Statements