Colm Holmes on Allianz Holdings' H1 results and tackling the inflationary environment

Earlier today, the insurance giant Allianz Group unveiled its “robust” Q2 2022 results that saw its operating profit increase to €3.5 billion, up 5.3% from Q2 2021. Across the UK, Allianz’s half-year results revealed a similarly strong showing, jumping 12.9% year-on-year to achieve a total revenue of £2.88 billion.

Speaking with Insurance Business, CEO of Allianz Holdings, Colm Holmes (pictured) revealed some of the financial highlights of the period that saw the business’s total revenue rise 5% to 1,956.6 million.

Holmes noted that he is very pleased with the results achieved amid difficult market conditions and particularly pleased that Allianz Commercial which is coming out of several years of remediation to return to growth. That 10% growth is a great endorsement of the work that has been done in remediating that business, he said, and in building and retaining strong broker relationships across the market.

“Building and strengthening our relationships with our brokers is a key part of our business,” he said. “And I’m personally delighted with the response that we're getting from brokers to the actions we've been taking and the investments we've been making to improve our business.”

Touching on the business’s operating profit which fell 42% in the half-year period, Holmes highlighted that a large part of this year-on-year movement can be attributed to the impact of coming out of the COVID lockdowns and the continued increase in motor claims frequency as drivers return to the road. This frequency increase was anticipated, he said, but is actually slightly less than anticipated.

Looking at the overall performance of the business, he said, its about two and a half points in core worse than where it was targeted to be, driven by three key factors – the impact of the February storms, the impact of large loss variants to its expectations and the impact of inflation on its reserves.

“The reason why the impact of inflation is subdued compared to what you might have expected is that we anticipated increased levels of inflation so we had actually priced for that,” Holmes said. “We've also taken a number of actions to mitigate the impact of inflation in the year. So that impact that you're seeing is after those actions have been taken and is the impact predominantly on business that has already been written.”

Moving into the second half of the year, he said, Allianz Holdings does anticipate the need for continued strengthening of rates across the business as the impacts of inflation continued to feed into claims costs. The insurer will continue to do everything it can to mitigate the impact of inflation but does anticipate the need for more rating in H2 2022.

“I think inflation is the biggest issue in the market right now,” Holmes said. “[…] People my age have seen a lot of inflation but for a lot of our people, it's not something they’ve dealt with before. But inflation is going to feed into the cost of claims, there is no way of avoiding that, and the nature of inflation is going to shift.

“It started with fuel, materials and supply chain impacts, but you're now seeing that feeding into labour costs, as well. That will feed into the cost of insurance. So, our absolute priority is managing the impacts of inflation, and mitigating the impact because there are a number of things we can do to minimise the impact of inflation on our business.”

As part of the Allianz Group, Allianz Holdings has access to and greater control over supply chains, he said, which offers it a lot of protection that isn’t available to everybody. At the same time, there are things it can do locally through its body shops, and LV= branded body shops that allow it greater control over the repair of vehicles within its supply chain which has a huge impact on reducing the cost of a claim.

Allianz Holdings’ priority is mitigating inflation wherever possible, he said, and he paid tribute to its teams who have done an exceptional job predicting inflation scenarios and their impacts on its pricing algorithms, though nobody could have predicted the levels of inflation seen this year.

“The other thing that I would say is as well as it being important to get this right in terms of pricing, it's critical that we get this right for our people,” he said. “Because [the impact] of the cost of living crisis, inflation, and recession on our customers and our people is something that we're very aware of. We have a team working to provide detailed options on how we can support our people and support our customers during what’s going to be a difficult market time for them.

“There’s a number of initiatives that we’ll look to put in place to help manage the risk for our customers and for our own people. That's very much a priority for me because we've got to get this right for people, for our customers. We know people are struggling and we need to do whatever we can to support them.”

From Holmes’ perspective, it’s critical that Allianz Holdings takes the opportunity to manage the risk for its customers during this crucial time. Underinsurance in the market was an issue even before the inflationary period set in, he said, and actions must be taken to ensure that it doesn’t worsen and leave businesses without sufficient levels of protection when unfortunate events take place.

It’s a concern that has been around for some time, he said, and while certain risks are being indexed, it's not nearly at the level it needs to be. The indexation of risk needs to take place in order for customers to be properly protected by insurance and with this in mind Allianz Holdings is working very closely with its broker partners to ensure that customers understand the need to have the right level of cover in order to continue trading in the event of an incident.

“They might well be covered but not sufficiently covered to put them back into the position they were in the first place,” he said. “So, that's something that we're doing - to help people understand and manage risk. We're going to be working extremely hard to make sure we get this right for our customers, we get this right for our people and to ensure that we deliver for our shareholders as well.

“And managing that is going to be more difficult than it is stable, non-inflationary, non-recessionary period. But that's what we're required to do. We’re professionals and we have a role to play in the market, we have a role to play for our customers, And we take that responsibility very seriously.”