Thread by @lucasmaruri

The Allianz Group is one of the leading integrated financial services providers worldwide.

How well do you know this company?
Do you understand insurance?

Here I will help you better understand the 8th largest company by market cap in the EuroStoxx50.

👇🧵

$ALV.DE $ALV $ALIZY

Allianz is the world's largest Property and Casualty (P&C) insurer.

Also it is a global leader in Life & Health and in Asset Management (owns PIMCO and Allianz Global Investors - With €2.4tn of Assets under Management at end 2020).

Operating Profit'20 by business:
· 38% non-life insurance
· 38% life insurance
· 24% asset management

By Geo, profit 2020 came from:
· 28% Germany
· 26% US
· 32% West/South Europe
· 14% Other

The Property & Casualty (P&C) is non-life insurance business.

P&C insurance are types of coverage that help protect things you own. This includes liability coverage when you are legally responsible for an accident.

Examples of insurance:
· Home
· Vehicle
· Business tangibles

The logic of the P&C business is quite easy to understand:

+ Net premiums earned
- Incurred Losses (Claims Paid + loss reserves)
- Expenses
= Underwriting Result
+/- Investment Result
+/- Other
= Operating Profit

The Life & Health (L&H) insurance covers the risk of loss of life and medical expenses arising from health issues, up to a certain coverage amount, in exchange for insurance premiums.

The logic of the L&H business is the following:

+/- Loading & fees
+ Investment margin
- Expenses
+ Technical margin
+ Impact of change in DAC
= Operating Profit

Loading is an additional cost/gain built into the insurance policy to cover losses which are higher/lower than anticipated for the company arising from insuring a person who is prone to a form of risk.

The investment margin goes upper due to the longer term profile of outflows.

Technical margin comprises risk result (risk premiums less benefits in excess of reserves), lapse result (surrender charges and commission clawbacks) and reinsurance result, all net of policyholder participation if any.

Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. Using the DAC method allows a company to defer the sales costs that are associated with acquiring a new customer over the term of the insurance contract.

Last but not least, Asset Managemnt (AM) business allows to invest the premiums until claims are made, to hedge the sensibility to rate changes of the present value of its future liabilities, and to earn an extra return.

The logic of the AM business is the simplest:

+ Performance fees on Asset under Management (AuM)
+/- Operating revenues & expenses
= Operating profit

Now we broadly got familiar with the business, lets discuss why an investment in Allianz could be interesting:

1) Growth in operating profit: market share gains and upside to premium pricing
2) Good Combined Ratio, that good risk profile and operating eficiency
3) High levels of Solvency (Strong Balance Sheet)
4) That allows good shareholder retribution (Dividend + ShareBuyBack)

5) Management has an excellent track record of value
creation, disciplined M&A, and proactive capital
management

6) Allianz historically has traded with premium against its peers, due to better combined ratio and a higher solvency profile.

However, nowadays trades in line with peers, due to a €3.7bn provision related to the colapse of Structured Alpha Funds. Is the "discount" deserved?

I am personally not a big fan of the Insurance business, but among them there is no doubt that Allianz $ALV.DE is a good company with an excelent track-record.

The Structured Alpha Funds case probably is allowing a good entry point, but only time will tell.

I have no position.