Below are key takeaways from Allianz’s 1Q24 results briefing:

General Segment: Good Sales Momentum

To recap, Allianz’s general business posted higher gross written premium (GWP) of 14.0% YoY in 1Q24, boosted by higher premiums from motor segment (+20.9% YoY). Note that Total Industry Volume (TIV) reached 260.2k units in 4M24, marking an 8.2% increase YoY, according to the Malaysian Automotive Association. Being the market leader, we understand that Allianz took advantage of the new operating cost controls (regulating intermediary expenses, cap at 3%) implemented by the regulators, by announcing its plans in the 2nd week of January, giving confidence to all intermediaries. With that, the group’s GWP growth outperformed the industry (+10% YoY) by 3.6 pts in 1Q24.

By end 2024, we expect Allianz market share to improve to 14.2% from 13.7% currently. Despite the strong GWP growth in 1Q24, we foresee headwinds coming from the lower TIV moving forward as some consumers might hold back car purchases following the reduction of fuel subsidies announcements. Positively, Allianz’s growing commercial, personal life and travel segment will help to mitigate the potential drop in new car sales. More importantly, management maintained its stance on focusing on technical pricing and profitable policies. Overall, we expect the general industry to grow by 8% in 2024.

Sterling Life Business Performance

Allianz’s life insurance division annualised new premiums (ANP) surged by 43.8% and surpassed the industry growth of 22.4% in 1Q24. Management shared that growth is driven by all key distribution channels. Bancassurance improved by 79.5% while agency ANP and employee benefits increased by 31.2% and 9.6% respectively. This led to a higher share of 2.0 pts to 11.8% QoQ in 3M24.

Going forward, the strong growth in bancassurance is expected to remain strong driven by its emphasis on insurance with proposition of savings business. Meanwhile, agency channel would also improve, back by an intensified agent’s recruitment and investment linked products. Allianz targets to double its agency sales force to 10,000 by 2028. Coupled with repricing activities, we expect ANP growth momentum to continue in 2Q24. Note that c. 90% of customers will stay despite the hike in premiums.

Gearshift: Regional Delivery Centre as Long-Term Strategy

With project Gearshift, Allianz plans to consolidate IT Supply Services into one global service provider, Allianz Technology. This new Regional Delivery Center (RDC) will be able to: i) access to larger IT talent pool, ii) accelerate new technologies, iii) create approximately 500 high profile jobs in Malaysia and iv) leverage on economies of scale. Management added that cost impact is neutral over the short term (transfer of total contract value of RM98.6mn), but expect savings in the long-run.

Impact

No change to earnings forecasts.

Valuation

Given that Allianz’s share has risen steeply, we downgrade the stock to HOLD (previously Buy) with a TP of RM23.27/share based on SOP valuation.

Source: TA Research - 27 May 2024