Writedowns and slumping investment income played havoc with earnings at Germany's Allianz and Dutch group ING, two top European insurers grappling with volatile equity markets. Shares in both fell sharply.
ING said on Wednesday that a sharply weaker insurance business helped push it to a much bigger than expected quarterly net loss and predicted a tough year ahead.
Allianz, Europe's biggest insurer, eked out a small net profit in the first three months as expected but writedowns on its equity holdings nearly doubled to more than 700 million euros ($954.2 million).
This came on top of an announced 400 million euro hit from its sale of Dresdner Bank to Commerzbank.
"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.
A series of charges for weaker investment prices across asset classes weighed on results at the Dutch banking and insurance group, which also made a larger than expected provision in the quarter for loan losses.
Investors took the news badly, sending ING's share down 5.7 percent by 0950 GMT, while shares in Allianz, which had already flagged headline first-quarter results two weeks ago, fell 3.75 percent.
Both shares lagged the sector, which UBS cut to neutral from overweight. The DJ Stoxx European insurance index was down 2.3 percent.
SLASHING RISK
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 in the first quarter and 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 stay unchanged, it might need to take another 300-400 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 of charges in ING's first-quarter earnings, and its chief risk officer said there could be another 25-30 million hit this quarter if equity markets stayed at current levels.
In the insurance business ING recognised 325 million euros of fair value changes and impairments on real estate and private equity investments, 365 million euros of impairments on securities and 550 million euros in charges related to customer acquisition costs.
In a research note, SNS Securities analysts said they were surprised by some items in ING's results and that total revaluations and impairments were 70 percent higher in the quarter than they had forecast.
Meanwhile, Belgian-French financial services group Dexia said it was "on the mend" on Wednesday after reporting better-than-expected net profit in the first quarter but it added that the crisis had had an impact of 419 million euros, including 201 million euros in impairments and losses on insurance investment portfolios.
British insurer Legal & General said on Wednesday first-quarter sales beat expectations, but it warned 2009 will not be an easy year for the industry.
