Operating profit of 1.86 billion euros achieved – Markdowns of 845 million euros in ABS trading book – Realized gains deliberately kept low; net harvesting 1.8 billion euros below first quarter 2007 – Perlet: "We remain optimistic about the medium term, as the fundamentals of our business are in very good shape."
Munich, May 9, 2008
Allianz Group weathered difficult market conditions in the first quarter of 2008, which were due to the continuing credit crisis and weak equity markets worldwide. Total revenues decreased by 5.7 percent to 27.7 billion euros, compared to 29.3 billion euros in the same period of 2007. Operating profit in the first quarter of 2008 amounted to 1.86 billion euros, or 1.0 billion euros less than in the first quarter of 2007. Thereof, 845 million euros are attributable to ABS markdowns in first quarter 2008. Quarterly net income amounted to 1.15 billion euros. This represents a 64.6 percent decrease, which is mainly a result of Allianz's decision to not realize gains from capital investments due to unfavorable stock markets. This is in strong contrast to the first quarter of 2007, when Allianz recorded net realized gains of 2.0 billion euros from investments. Net-harvesting was 1.8 billion euros lower than in first quarter 2007.
Allianz Group did register some spill-over effects from the financial markets turmoil into its operations, such as lower investment income in Life and Health, decreased fee and commission income in Banking, and lower revenues from third-party equities business in Asset Management. However, Allianz Group’s fundamental business operations were robust with continued efficiency gains. Moreover, the Property and Casualty business recorded a very strong increase of operating profit and a combined ratio of 94.8 percent. The asset quality in insurance was strong. Also, the new business margin in Life and Health was at target level.
Allianz Group's capital base remains strong with shareholders’ equity amounting to 45.0 billion euros, compared to 47.8 billion euros at December 31, 2007.
The Property and Casualty business posted strong performance in the first quarter of 2008 with an operating profit improvement of 16.7 percent to 1.48 billion euros, compared to 1.27 billion euros in the first quarter of 2007. Gross premiums written, at 13.7 billion euros, nearly reached the same level of the previous year's first quarter. At 94.8 percent, the combined ratio was in the target range and significantly lower than 96.8 percent in the first quarter of 2007. The expense ratio was 26.1 percent, 2.5 percentage points lower than in the previous year's first quarter.
"We have again achieved superior results in soft P&C markets, through selective underwriting, pricing discipline and improved efficiency. Therefore, we are in a position for strong growth when the cycle turns in our mature markets," said Helmut Perlet, CFO of Allianz SE.
In the Life and Health business, total premium income remained stable at 12.3 billion euros, compared with the first quarter of 2007. Strong top-line growth in most major markets was in contrast to a specific development in Italy, where the entire bancassurance market was down by more than 30 percent in the first months of 2008. Switzerland, France and Germany recorded strong internal growth in Life through the acquisition of large group contracts. In Asia Pacific, Allianz maintained the growth momentum despite weaker bancassurance sales.
Operating profit decreased by 21.5 percent from 750 million euros in the first quarter of 2007 to 589 million euros, which was predominantly driven by a lower investment income.
"The underlying fundamentals in our Life and Health business are on track, demonstrated by a new business margin of 3 percent and positive net inflows," said Helmut Perlet.
Dresdner Bank saw a significant decline in operating revenues by 64.5 percent to 719 million euros, compared to over 2.0 billion euros in the first quarter of 2007. This was predominantly driven by 845 million euros in markdowns on the ABS trading book. The interest income amounted to 669 million euros, compared to 900 million euros in the first quarter of 2007. Net fee and commission income decreased from 789 million euros to 604 million euros, which reflects the current market environment leading to a lower income from transaction-driven securities business.
The operating profit decreased to -453 million euros, from 677 million euros in the first quarter of 2007. However, expenses were further reduced across all expense categories and divisions. Overall, operating expenses decreased to 1.16 billion euros from 1.35 billion euros in the previous year's first quarter.
In Asset Management, third-party assets under management decreased to 736 billion euros from 765 billion euros at December 31, 2007. Third-party net inflows at 25.9 billion euros in the first quarter of 2008 were strong and supported by Allianz Global Investors' resilient fixed-income business in the difficult market conditions. Internal growth of third-party assets under management was 2.4 percent. Given the weak equity markets, operating profit decreased from 312 million euros in the previous year's quarter to 241 million euros. The cost-income ratio amounted to 66.9 percent.
"We believe our Asset Management business did very well, given the extremely difficult market environment. Taking into consideration strong net inflows and stable margins, the segment is poised for future growth as markets go back to normal," said Helmut Perlet.
"Although we are seeing somewhat lesser tension in US residential mortgage prices as well as cautiously rebounding equity markets, it is hard to predict when the stormy weather will end. While 2008 will remain a challenging year, the longer this environment persists the harder it will also be to achieve our medium term outlook. Yet we remain optimistic, as the fundamentals of our business are in very good shape and we are very well positioned for the return to normal market conditions," said Helmut Perlet.
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| US Treasury Bonds, Notes & Bills |
The US government is a big force in the bond market.
|The US Treasury issues three types of debt securities. They differ from each other in their maturities, in the frequency with which they are offered, in the interest rates they pay, and the way in which the interest is paid. They share the reputation of being absolutely safe from default, though they're vulnerable to changes in market price and the impact of rising or falling interest rates.|
The most common issues are notes, available with 2-, 3-, 5-, or 10-year terms, and bills, available with 4-, 13-, or 26-week terms. There are also inflation-indexed 10-year notes. Finallly, there are Treasury STRIPS, which are government zero-coupon bonds.
In late 2001, the Treasury stopped auctioning new 30-year bonds and 30-year inflation indexed bonds, although existing bonds continue to trade in the secondary market. These long-term issues, sometimes called long bonds, typically paid higher interest than notes or bills, making them a more expensive way for the government to borrow.
Treasury issues are sold in $1,000 increments, and you can invest as little as $1,000 or as much as $1 million. You can buy and sell directly, through a program known as Treasury Direct, or through a broker.
Bills are auctioned every week. The 2-year notes are currently auctioned once a month, and the 5-and 10-year notes in February, May, August, and November. The frequency of those auctions changes from time to time, though. You can get current auction information by visiting the Treasury Direct website (www.treasurydirect.gov).
Like other debt securities, Treasurys are traded in the secondary market after issue, and their prices fluctuate to reflect changing demand. Details of those trades, in the order of maturity date, are reported regularly in tables like the one below.
READING THE TABLES
Rate is the percentage of par value paid as annual interest. The note maturing in March 04 pays 5 7/8% interest.
Maturity is the month and year the bond or note comes due. A range of rates for notes maturing in the same month indicate that those notes were of different durations — from two years to ten — or were issued at different times, or both.
An n after the date indicates that the issue is a note as all the issues in this chart are.
Prices for Treasury issues are quoted as bid and asked instead of as a closing price. That's because these securities are traded over-the-counter, in thousands of private, one-on-one transactions. So it's not possible to determine the exact price of the last transaction. The best information that's available is the highest price offered — the bid — by buyers and the lowest price being asked by sellers at 4 pm Eastern time.
Treasury bond and note prices are measured in 32nds rather than 100ths of a point. Each 1/32 equals 31.25 cents, but the fractional part is dropped when the price is quoted. If a bond is selling at 100:2 (or 100 and 2/32), the price translates to $1,000.62.
Trading in STRIPS is also reported, in a separate section of the table. STRIPS prices are always less than par, since they are issued at a deep discount. Those closer to maturity trade at higher prices, since they can be redeemed at par value when they come due. Compare the 99:27 bid price of the issue that matures in February 02 with the 96.14 bid price for one that matures in November 02. Those with later maturity dates are also more volatile. Type describes the category of STRIP. ci indicates stripped coupon interest, np indicates a note with stripped principal, and bp, which doesn't appear in this example, indicates a bond with stripped principal.