* Allianz, Axa earnings stronger than expected
* Warn that delay to risk-capital rules nagging industry
* Play down impact of being listed as systemic insurers
By Christian Plumb and Jonathan Gould
PARIS/FRANKFURT, Aug 2 Europe's two top
insurers, Allianz and AXA, reported
forecast-beating earnings on Friday even as both keep a wary eye
on looming regulations, with AXA's CEO warning of the dangers of
an "avalanche of bureaucracy".
Like other insurers, the two have been struggling against
low interest rates that crimp the yield they can earn on their
investments but both managed to achieve stronger than expected
gains in operating profit, helped by strength in asset
management and their property and casualty insurance businesses.
AXA's net profit was marred by an accounting loss related to
interest rate hedging and other one-offs, but investors focused
on a 16 percent gain in underlying earnings, bidding up its
shares by 3.4 percent. Allianz shares rose 1.5 percent, with
asset flows at giant U.S. fund management unit Pimco remaining a
concern for some investors.
In addition to low interest rates, uncertainties about a
raft of tightening regulation are weighing on the sector.
Allianz and Axa are among nine global insurers that have
been listed as "systemically relevant" by international
regulators for posing a potential threat to the financial system
should they fail. Insurers on the list face tighter scrutiny and
additional capital charges that would act as a safety buffer.
AXA Chief Executive Henri de Castries told a news conference
he was taking a "watchful and interested" stance toward the
designation: "watchful because we don't want this to translate
into an avalanche of additional bureaucracy; interested because
if these efforts lead people to believe insurers lend stability
to the financial system, it will be a good thing."
Allianz, for its part, said it was confident of meeting any
additional capital demands from the designation.
NEED QUICK SOLVENCY FIX
Turning to a related regulatory issue, Castries said the
failure to reach a deal on uniform risk-capital rules, known as
Solvency II, was a growing problem for the industry and urged a
quick compromise once talks to finalise them are renewed in
"The alternative, if Solvency II were to fail, if the
Europeans couldn't reach a deal, would be the risk of 28
different solvency regimes," he said.
Some countries are already moving in that direction.
Britain is introducing extra capital safeguards and "warning
indicators" for insurers because it doesn't trust the in-house
models insurers will use to calculate capital requirements under
the EU rules.
Allianz said the learning curve for internal models was
steep for insurers, regulators and credit ratings agencies alike
but warned against reverting to simple ratios to cut through the
"We had a simple solution with Solvency I but a return to
Solvency I is not the answer," Allianz CFO Dieter Wemmer said,
adding that the rules for supervising insurers up to now do not
adequately reflect market risks and are outdated.
Solvency II was meant to be in force by now but was delayed
after Britain, Germany and France called for a rethink over how
products that offer guaranteed returns over the long term are
treated to avoid overly burdensome capital requirements.
On Thursday, British insurer RSA said the rules should be
finalised this year to avoid prolonged delay and uncertainty for
Credit rating agency Standard & Poor's warned on Friday that
insurers should not use delays in finalising the regulation as
an excuse to drag their heels on starting to comply.
"We will view negatively those insurers who use the extra
time to delay taking actions," S&P credit analyst Rob Jones said
in a note.
AXA's half-year and Allianz's second-quarter results beat
analysts forecasts, helped in both cases by better-than-expected
results at their non-life businesses.
AXA shares may have been the greater beneficiary largely
because of valuation; the French group's stock trades at 8.8
times 2013 earnings, while Allianz's multiple is 9.4.
"I think with regards to Allianz there are still fears with
regard to Pimco and its reliance on the U.S. bond market," said
Harry Wolhandler, managing director at Amilton Asset Management
in Paris. "We own both stocks but we think that because of
valuation there's greater room for near-term appreciation for
Allianz executives told investors they thought the concerns
about Pimco, whose largest fund has been rattled by fears of
higher U.S. rates, were overblown.
(Editing by David Evans)