Allianz’s 9MFY12 earnings exceeded consensus and our full-year earnings estimates by 17.3% and 21.4% respectively, while core earnings grew 36.6% y-o-y. The group has continued to benefit from increased agents’ contribution, while its life insurance business was boosted by investment income with a record yield of 5.5%. On the group level, 3Q tax expenses were lower than expected, with aneffective tax rate of only 26%. Our forecasts are unchanged pending the company’s briefing today. However, in view of its share price appreciation, we downgrade our call to NEUTRAL. We typically expect 4Q results to be stronger.
Beat expectations again. Allianz’s 9MFY12 earnings of RM163.6m once again beat consensus and our full-year earnings estimates by 17.3% and 21.4% respectively. If we were to exclude the transfer of life business non-participating funds to reflect retrospective adoption of MFRS139, Allianz’s YTD core earnings of RM133.6m would have reflected a remarkable 36.6% y-o-y growth. Gross premiums growth continues to outpace industry levels, with general insurance and life insurance growing at 15.1% and 12.7% y-o-y respectively.
Agency sales boost performance. Allianz’s general insurance business continued to be supported by agents’ contribution, which made up about 54% of its general insurance channel mix. The life insurance business was boosted by stronger recurring premiums from agency sales, up 13.6% from 9MFY11 numbers. While the life insurance’s new premium was in line with last year’s, we note a rise in agents’ contribution to 93% YTD from 1Q’s 90%. We believe Allianz is on track to achieve its previously reported agency force target of 15k by 2015 as each insurance segment is expected to the number of agents grow to 6k by end-2012.
Sharply reduced effective core tax rate. Allianz recorded a favourable tax expense from its core profit before tax. Effective tax rate for 3QFY12 amounted to merely 26%, significantly lower than the 34% of last quarter and 36% of 3QFY11. This translates to YTD tax rate of 31%, below our tax expense forecast. We think the tax rate may likely rebound to its historical levels of >30%. We will be seeking clarification from management on this.
NEUTRAL. We maintain our forecasts pending the group’s briefing today. Our FV is retained at RM7.53.
Beat expectations again. Allianz’s 9MFY12 earnings of RM163.6m once again beat consensus and our full-year earnings estimates by 17.3% and 21.4% respectively. If we were to exclude the transfer of life business non-participating funds to reflect retrospective adoption of MFRS139, Allianz’s YTD core earnings of RM133.6m would have reflected a remarkable 36.6% y-o-y growth. Gross premiums growth continues to outpace industry levels, with general insurance and life insurance growing at 15.1% and 12.7% y-o-y respectively.
Agency sales boost performance. Allianz’s general insurance business continued to be supported by agents’ contribution, which made up about 54% of its general insurance channel mix. The life insurance business was boosted by stronger recurring premiums from agency sales, up 13.6% from 9MFY11 numbers. While the life insurance’s new premium was in line with last year’s, we note a rise in agents’ contribution to 93% YTD from 1Q’s 90%. We believe Allianz is on track to achieve its previously reported agency force target of 15k by 2015 as each insurance segment is expected to the number of agents grow to 6k by end-2012.
Sharply reduced effective core tax rate. Allianz recorded a favourable tax expense from its core profit before tax. Effective tax rate for 3QFY12 amounted to merely 26%, significantly lower than the 34% of last quarter and 36% of 3QFY11. This translates to YTD tax rate of 31%, below our tax expense forecast. We think the tax rate may likely rebound to its historical levels of >30%. We will be seeking clarification from management on this.
NEUTRAL. We maintain our forecasts pending the group’s briefing today. Our FV is retained at RM7.53.
General insurance’s margins improve. Allianz’s general insurance division recorded a 18.4% increase in underwriting profit and a 16.5% increase in net investment income. Overall combined ratio improved 1.1pts to 86.3% y-o-y, mainly due to a sharp compression in commission ratio by 2.4pts to 7.5% from 9.9% in 9MFY11. This was, however, offset partially by the increase in management expenses ratio of 1.7pts to 19.7%. Investment performance for general insurance enjoyed a stable 16.5% y-o-y growth, with an investment yield of 3.9%. To date, 56.5% of the investment portfolio is allocated in government bonds and 34.1% in corporate bonds.
Marginal decrease in life insurance profit. Allianz’s life insurance division’s profit before tax (PBT) dropped 2.2% due to more claims reserving and higher commission expenses ratio. We also noted that the lapse ratio for life insurance business ticked up 30bps to 7.4%, while its persistency reached 85.6%.
Investment income helps sustain life insurance performance. Investment income grew strongly by 20% y-o-y due to higher investment yield of 5.5% versus 5% in 1HFY12, as well as a lumpy increase of 153.5% in fair value gains of investment, mainly a RM25.6m gain in 2Q. In 3Q alone, there were some fair value losses in derivative assets held-for-trading, which resulted in an overall fair value loss of RM4.4m in 3Q.
IL products drive growth in life insurance. Agency sales have continued to drive the growth of Allianz’s life insurance products, especially within the higher-margin investment-linked (IL) products which grew more than 35% y-o-y. Consequently, within its agency product mix, we observed an increase in the ratio of unit-linked segment to 77.3% from 44.9% in 1HFY11 by policy count as compared to traditional products. This is in line with the company’s target to leverage on the more profitable unit-linked business segment.
Marginal decrease in life insurance profit. Allianz’s life insurance division’s profit before tax (PBT) dropped 2.2% due to more claims reserving and higher commission expenses ratio. We also noted that the lapse ratio for life insurance business ticked up 30bps to 7.4%, while its persistency reached 85.6%.
Investment income helps sustain life insurance performance. Investment income grew strongly by 20% y-o-y due to higher investment yield of 5.5% versus 5% in 1HFY12, as well as a lumpy increase of 153.5% in fair value gains of investment, mainly a RM25.6m gain in 2Q. In 3Q alone, there were some fair value losses in derivative assets held-for-trading, which resulted in an overall fair value loss of RM4.4m in 3Q.
IL products drive growth in life insurance. Agency sales have continued to drive the growth of Allianz’s life insurance products, especially within the higher-margin investment-linked (IL) products which grew more than 35% y-o-y. Consequently, within its agency product mix, we observed an increase in the ratio of unit-linked segment to 77.3% from 44.9% in 1HFY11 by policy count as compared to traditional products. This is in line with the company’s target to leverage on the more profitable unit-linked business segment.
Source: OSK
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