Resolving the litigation and investigations related to its Structured Alpha funds is a "high priority" for Allianz SE, and the company is committed to putting the uncertainty about the ultimate cost behind it "as soon as possible," CFO Giulio Terzariol said Nov. 10.
But the German insurer wants to reach a solution that is "economically reasonable" and needs to strike the right balance between a speedy resolution and the best outcome, Terzariol told journalists on an earnings call.
Allianz revealed in August that the U.S. Department of Justice had launched an investigation into the Structured Alpha funds offered by its Allianz Global Investors asset management unit in the U.S. The company was already facing investor lawsuits in U.S. courts alleging mismanagement of the loss-making funds and an investigation by the SEC.
Allianz said when announcing the DOJ investigation that there was a "relevant risk" that matters relating to the Structured Alpha funds "could materially impact future financial results of Allianz Group." Costs could include payouts related to the litigation as well as regulatory fines, depending on the outcomes of the cases and investigations.
Analysts at Berenberg estimated in an Oct. 14 research note that settling Structured Alpha claims and fines could cost Allianz €7.6 billion in a worst-case scenario. Allianz itself has yet to estimate the potential financial impact or set aside a reserve, though Terzariol said the company is "working very actively with the DOJ and the SEC" and that he "could imagine" that the insurer would produce a figure by year-end 2021.
"We are going to do what we can in order to come out with an estimate but we need to see how the situation is evolving, so it is a little bit hard to talk about expectations," Terzariol said.
Allianz made a net profit attributable to shareholders of €2.11 billion in the third quarter, up from €2.06 billion in the same quarter of 2020. For the first nine months of 2021, profit rose to €6.90 billion from €4.99 billion year over year.
The improvement came despite a higher-than-average hit from natural catastrophes in the third quarter. Allianz's non-life business paid out net natural catastrophe claims of €659 million in the quarter, which added 4.9 percentage points to its combined ratio, compared to a 10-year average of 2 points. The main drivers were around €400 million of net claims from the European floods and around €100 million of claims from Hurricane Ida in the U.S.
