Writedowns and slumping investment income played havoc with first-quarter earnings at three of Europe's top insurers grappling with volatile equity markets, sending their shares down sharply. Dutch group ING said on Wednesday that sharply weaker insurance business helped push it to a much bigger than expected first-quarter net loss of 793 million euros ($1.1 billion) and predicted a tough year ahead.
Allianz, Europe's biggest insurer, eked out a small net profit of 29 million euros in the first three months of the year, down 98 percent from the previous year as expected, but writedowns on its equity holdings nearly doubled to more than 700 million euros. This came on top of a 400 million euro hit from its sale of Dresdner Bank to Commerzbank.
Italy's largest insurer, Generali, unveiled a sharp fall in its net profit for the first quarter, bashed by 1.5 billion euros in writedowns linked to slumping equity markets. But like the other insurers, the company said its capital strength remained robust. A series of charges for weaker investment prices across asset classes weighed on ING's results, which also made a larger-than-expected provision in the quarter for loan losses.
"Market conditions remained challenging in the first quarter as equity markets declined further, credit spreads remained elevated, real estate prices continued to fall and loan losses increased as the crisis spread from the financial markets to the real economy," ING Chief Executive Jan Hommen said.
Investors took the insurers' news badly, sending ING shares down 10.1 percent by 1421 GMT, while shares in Allianz, which had already flagged headline first-quarter results two weeks ago, fell 6.4 percent. Generali was down 4.3 percent. Shares in Dutch insurer Aegon NV, which is expected to post a first-quarter net loss of 362 million euros when it posts its earnings on Thursday, were down 12.0 percent.
The broader European insurance sector, which UBS cut to "neutral" from "overweight", fell 5.8 percent. UK insurer Prudential Plc also reports on Thursday. Insurers around Europe have stressed the need to get back to basics and focus on profitable insurance underwriting as income from equity and fixed-income investments slumps.
Like their peers, ING and Allianz said they were working to take risks out of their balance sheets and were slashing their holdings of equity investments. Allianz Chief Financial Officer Helmut Perlet said equities still made up 8 percent of the company's investments and that if share markets stayed unchanged, it might need to take another 300 million to 400 million euros in writedowns in the second quarter.
Perlet said the company was weathering the financial market storm and was strong enough to withstand a further 30 percent drop in equities prices if needed. "We are strongly capitalised, our investment portfolio is of high quality and liquid, and our operating profitability proves resilient," he said. Weaker share markets contributed about 50 million euros in charges to ING's first-quarter earnings, and its chief risk officer, Koos Timmermans, said there could be another 25 million to 30 million hit this quarter if equity markets stayed at current levels.
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