Germany's Allianz SE had a rotten quarter with revenues down 2.5% from prior year (at euros 29.4 bn) coupled with ultra-low investment returns on its holdings from premiums and serious payouts for disasters. These included everything from US hailstorms to floods in Germany and France, to wildfires in Canada. Insurance firms are victims of global warming and central bank zero interest rate policies.

The result was that quarterly net income fell by 44% to euros 1.185 bn while EPS plummeted 46.3% euros 2.4 per share, and even worse for dollar stockholders.

The key P&C combined ratio was 96.4% vs 93.5% the year before. The combined ratio measures profitability by adding up incurred losses and expenses and dividing them by earned premiums. Lower is better. This shows that AZSEY has been able to recuperate some of its payouts by boosting premiums. It also hugely boosted premiums for new business in its life-health insurance lines, up 62.2% in Q2 and overall, new business came in at margins 2.6% higher than old.

It also shifted its life insurance business toward greater capital efficiency, which cut revenues but increased profits from new business.

Allianz also put at “held for sale” its South Korean sub which will generate euros 352 mn from buyer Anbang eventually. However the classification also cut Q2 net income. Its year ago income was also boosted from the sale of its US Fireman's Fund personal insurance line, which of course was not repeated.

And for US owners also, it finally got around to better integrating its Pimco fund management operations in San Diego with its parent fund management ones in Frankfurt, Germany. It has cut its wage bill with a spate of retirements and named Manny Roman, a Frenchman hired from Man Group in Britain, as Pimco CEO. It hired several new portfolio managers at Pimco, which still has $1.5 bn under management, luring them in with a chance to make a name for themselves and live in sunny southern Califormia. In the quarter, operating profits dropped by 9.3% from continuing net outflows to the equivalent of euros 961 mn. Thanks to lower operating expenses, the profit in this area, at euros 498 mn fell 1.4% y/y but actually rose 8% sequentially. Way to go, guys.

CEO Oliver Baete said that “barring any unseen evens or unexpected turbulence in the capital markets, we confirm our goal of achieving and operating profits of 10.5 bn euros, plus or minus 500 mn euros, for the entire year. We remain strongly capitalized and our carefully managed risk profit allows us to withstand market shocks.” Its operating profit last year was euros 10.7 bn. Baete also aims to get sales up 5% on average per year over the enxt 3 years and to bet return on equity to 13% by 2018. Bloomberg quoted Thomas Seidl of brokers Sanford Bernstein as predicting a 70% chance of a 1-2 bn euros buyback of shares in H2 this year.

We bought into the German insurer after the Bill Gross exit judging that the parent was going to be able to recuperate from the loss of its US rainmaker. We were wrong. But I can see the potential in Germany and certainly like this evolving insurer better than others which do not have to deal with a crisis. The stock price fell over 4% today in Frankfurt and is down by about a quarter YTD, fractionally higher than the drop in overall European insurance stocks, 22%.

Mr Gross now runs Janus Global Unconstrained Bond Fund and warns, rightly, that “at the zero-bound rates offered by many central banks, [commercial] banks, insurance companies, pension funds, and 'Main Street' are stripped of their ability to pay for future debts or retirement benefits.” He also expects central banks to roll over the debt they are buying rather than selling the bonds back to the market, which he expects will go on for 50 years.