Pimco parent profit gains but not from asset management

Allianz SE, the German owner of bond giant Pacific Investment Management Co., said its second-quarter profit jumped from a year earlier as stronger earnings from its insurance business offset weaknesses in its asset management units.

Group operating profit increased 7.1% to €3.8 billion ($4.2 billion) on higher results from the U.S. life-health insurance business, Allianz said Thursday. The asset management segment, which also includes Allianz Global Investors, posted lower earnings following a historic bond rout. Pimco attracted about €4 billion from external clients in the three months through June, in a sign of stabilizing investor confidence.

Chief Executive Oliver Baete is in the midst of a three-year strategic plan that’s aiming for steady topline growth, better profitability and efficient capital management through 2024, while generating billions of euros of excess capital. He has largely refrained from larger acquisitions, paving the way for share buybacks and higher dividends despite a costly legal dispute in the U.S.

Operating profit from property-casualty insurance rose by 10.8%, while life-health insurance posted an increase of 22.5%. The asset management units recorded a decline of 9%. 

Allianz confirmed its target for operating profit this year, which is roughly in line with last year’s earnings of €14.2 billion. 

“Overall, these results highlight the underlying quality of the business, and we think should be taken favorably by the shares,” Deutsche Bank analyst Hadley Cohen wrote in a note. 

Allianz shares were trading 3.5% higher in Frankfurt at 9:34 a.m. local time. 

Allianz said external clients added money at Pimco for a second consecutive quarter after outflows of more than €75 billion last year. 

“There is stability coming through,” Allianz chief financial officer Giulio Terzariol said in an interview with Bloomberg TV, adding that flows in July have also been positive. “We are kind of optimistic that we continue to see positive flows at Pimco as we go into the remainder of the year,” he said.

Allianz has executed 11 billion euros of share buybacks since February 2017, before announcing another €1.5 billion program in May. Baete also raised the dividend after a record operating profit for 2022.

Some analysts expect Allianz to return more capital to shareholders before the end of this year. Hamburg-based Berenberg predicts that another €1 billion buyback could be announced alongside third-quarter earnings, according to a July note.

Those expectations come after Baete said he’s in no rush to do bigger deals. “Larger M&A transactions are less likely to be successful,” Baete said in a June interview. “And there also need to be interesting bigger takeover targets. I didn’t see any.”