Profitability and personal lines COR hit by expansion plan expenses
Allianz UK’s profitability was squeezed in the first half of 2014 by expenses related to its expansion plan, according to chief executive Jon Dye.
The company grew gross written premium by 9.7% in the half, which Dye said was 1.3 percentage points ahead of its plan. But operating profit was down 25%.
Like many of its peers Allianz’s first quarter result was affected by weather claims, but Dye said that despite this the company had only narrowly missed its profit target for the first half.
Allianz was expecting a lower first-half profit in 2014 because of expenditure on growth, particularly in personal lines.
Dye said: “To grow the direct proposition we have been making some investments, both in our technology but also in the brand. Eighteen months ago we had never spent a cent advertising Allianz as a consumer brand in the UK and that has changed.”
He added: “If you are going to put in place strategic investments to grow the business over a number of years, you have got to pay for them.”
The results also include set-up costs for personal lines corporate partnerships. Dye said: “That [cost] will be gone by next year but is still in the number now.”
The costs were also the main reason for the 5.5% jump in Allianz’s personal lines combined operating ratio (COR) to 100.3% (H1 2013: 94.8%).
In March Allianz UK unveiled a five year growth plan, under which it aims to become a £3bn business by the end of 2018.
Dye said that all lines of Allianz UK’s commercial and personal business had grown in the first half of 2014, including personal motor, where rates are depressed. Allianz’s direct motor book now has 200,000 customers.
He said that growth in Allianz’s motor growth was caused in part by a favourable “conspiracy of circumstances” – Allianz released lowerr prices in April at a time when motor rate declines were starting to slow down.
But he insisted that the company is growing steadily in motor and not compromising underwriting discipline to grab market share.
He said: “We are not sacrificing profitability through the loss ratio to grow the account.
“We would have some confidence that it is still going to deliver a similar level of profitability as we have enjoyed in the past.”