Allianz, the German insurance company, has shown a promising start to the year, rebounding from the challenges faced in 2022. The company has resolved U.S. government investigations related to Structured Alpha and is back on track to generate profits. Mare Evidence Lab, a leading analysis firm, has maintained its buy rating for Allianz, citing a solid track record, attractive dividends, and upside potential in the PIMCO Division and higher reinvestment yield.
One key factor contributing to Allianz’s success is the change in the interest rate environment. Over the past decade, insurance companies have become more adept at managing costs, resulting in improved operating profits. Mare Evidence Lab highlights the importance of the combined ratio (CR), which measures profitability by comparing incurred losses and expenses to earned premiums. Allianz’s lower CR indicates profitability, boosted by higher reinvestment yield and improved CR evolution.
Another growth driver for Allianz is its Asia Pacific operation, expected to experience significant growth in the coming years. The company aims to increase its total operating profit in the region and is focused on building distribution capabilities through a multi-channel strategy and expanding its agency presence.
In the first quarter of 2023, Allianz reported positive results, with total volumes increasing by 3.9% and a remarkable improvement in the combined ratio. The economic reinvestment yield reached 4.0%, benefiting from changes in the yield environment. Allianz’s core operating profit surged by almost 25%, and the shareholders’ net income reached €2.2 billion.
The company’s strong performance was attributed to its diversified business mix, robust pricing, underwriting discipline, and focus on productivity gains, particularly in the Property-Casualty segment.
Allianz’s Solvency II capitalization ratio also showed positive growth, reaching 206% in the first quarter, reflecting a healthy financial position. The company plans to increase its dividend per share (DPS) for 2024, aiming for a minimum of a 50% payout ratio or the previous year’s DPS plus 5%.
Based on a Price Earnings multiple of 10x and a 5-year average, Mare Evidence Lab reaffirms its buy rating for Allianz, with a target price of €220 per share ($23.4 in ADR). The company’s new share repurchase program, amounting to €1.5 billion, is expected to support further stock price appreciation.
Please note that Allianz is not traded on a major U.S. exchange, and investors should be aware of the associated risks when considering these stocks.
