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Allianz Q1 profit plummets as write-downs bite

Insurance giant Allianz saw its net income for the first quarter of 2009 drop by EUR1.12bn to EUR29mn compared to Q1 2008, as write-downs almost doubled to EUR708mn and its property and casualty (P&C) business produced sluggish figures.

Allianz also confirmed its pre-announced final charge of EUR400mn as it cast off its problem child banking arm Dresdner.

Operating profit declined 36 percent to EUR1.42bn - a marginally smaller fall than Allianz's preliminary forecasts of EUR1.3bn. This reflects the insurer's repeated claims since scrapping its operating profit projections for 2008 and 2009 that reliable profit forecasts are not possible due to current market conditions.

Allianz's P&C unit - its largest in terms of premium volume - saw operating profit decline 34 percent from EUR1.48bn to EUR970mn for the first quarter, while net income from continued operations declined from EUR1.06bn to EUR431mn and the unit's combined ratio increased from 94.8 percent in Q1 2008 to 98.5 percent.

"Our accident year loss ratio has been rising, but the trend continues to stay below claims inflation," CFO Helmut Perlet said. He added that the firm has seen renewal prices "begin to rise" and that P&C gross written premiums had increased by EUR200mn to EUR13.9bn against the same period in 2008.

But analysts at Citi described the insurer's P&C results as "weak", with the combined ratio coming in 2.5 percentage points higher than their 96 percent estimate. They added that the 0.8 percent price hikes that Allianz flagged across its P&C book are "unlikely to be enough to prevent at least some level of further margin erosion".

The industry leviathan also recorded what it described as the "first signs of recovery" in its life and health business - booking EUR700mn growth on its top line to EUR13bn for the first quarter. Nevertheless, operating profit dropped EUR200mn to EUR400mn in the first three months of the year.

However, Citi countered this positive stance by pointing out that the 34 percent increase in new life and health business was due to Allianz still offering living benefit guarantees attached to troubled variable annuity products through March, while many of its competitors had ceased. Given the negative business margins, Citi described this as "hardly positive".

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