Allianz write-downs meet expectations but Italian exposure remains

German insurer Allianz is unlikely to be downgraded after write-downs caused profits to tumble by 80%, according to Fitch.

However, the group’s results of the three months to September 30 show it still has a significant exposure to Italian government bonds.

At the end of the third quarter, the group’s net income stood at €258m (£219.4m) after being “heavily impacted by financial market turmoil”.

This is a fall from the profit of €1.8 billion posted one year earlier and driven by non-operating write-downs of €931m – particularly those related to Greek sovereign debt and investments in the financial sector.

Commenting on the results, Fitch Ratings says the write-downs are in-line with previous expectations and will not compromise the insurer’s rating.

“We have previously commented that German life insurers’ exposure to equities and Greek government debt will trigger a drop in investment income, but that this is small enough for the companies to digest,” says the agency.

“The losses at Allianz are likely to be at the high end for large German insurers… Although large, in relative terms the write-downs are manageable for Allianz.”

However, the group’s exposure to Greek sovereign debt is relatively small when compared with that to Italy. At the end of the third quarter, Greek sovereign bond holdings accounted for 0.1 % of the firm’s €413.5 billion fixed income portfolio – while the Italian exposure amounted to 6.2%.

Italian government bonds owned by Allianz were worth €25.6 billion at the end of the third quarter. The company also made a net €385m loss on its Italian sovereign bonds, although this does not have be booked as write-downs under accounting standards.

Oliver Bäte, chief financial officer of Allianz, says the group expects to meet its 2011 operating profit target of €8 billion, give or take €500m.

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