UNDERLYING PERFORMANCE AT ALLIANZ IS STRONG AND THE OUTLOOK IS POSITIVE

The change to the Discount Rate had a £58.3m impact on the company’s existing reserves which resulted in a restatement of the 2016 financial results on a local basis. The effect of the change was to reduce the 2016 profit number from £154.5m to £96.2m and move the Combined Operating Ratio (COR) from 96.4% to 99.2%.It is worth noting that the business still delivered an underwriting profit in 2016 despite the effect of the lowering of the Discount Rate.

At the Allianz Group level the number was not material and therefore did not require a restatement of the 2016 results. Consequently the impact of the Discount Rate on Allianz UK is reflected in the Group’s published results for the UK in Q1 2017.

The 2017 local Q1 results show the Gross Written Premium (GWP) at £545.0m which is basically flat compared to prior year.This reflects some continuing influence of withdrawing from the direct market which will no longer be a factor from the mid-year point.On a like-for-like comparison the business overall has grown by 1.1% compared to the same period last year. Strong contributions have come from Commercial and Petplan and overall the business is well placed to kick-on and seize opportunities for further profitable growth.

On a local basis the business delivered a profit of £37.5m and a COR of 96.7% in Q1 2017. Without the current year impact of the Discount Rate the local profit number for the quarter would have been £9.3m higher at £46.8m and the COR would reduce to 94.9% from 96.7%, which confirms the underlying strength of the business.

The extent of the reduction to the Discount Rate is deeply regrettable because of the impact on the cost of insurance for customers and it needs to change. It is encouraging that the Chancellor, Philip Hammond reacted so promptly to the industry’s forceful and concerted call for action.The hope is that the General Election does not add significant delay to what everyone must hope is the government’s return to sanity on this issue.

The discussions the business has been having about the impact and ramifications of the Discount Rate with brokers at a local level have been constructive, considered and collaborative. That is not to say they have all been plain sailing which is understandable because it falls to brokers to be the bearer of difficult news to their customers.

Allianz’s reputation for taking sensible and long-term decisions has been helpful in the discussions with brokers, as has the effort the business has put into communicating about the Discount Rate in a clear and straightforward way which has been very well received.

One of the key messages we have been focussing on in our communications is that this is not just a motor issue. Claims costs are increasing for all lines of business that include cover for bodily injury. This means Private and Commercial Motor, Motor Trade, Casualty (Employers Liability, Other Liability and Contractors Liability) as well as SME business are all affected.

Turning to the trading performance of the business, Commercial Lines has had a good quarter. GWP is up 4.1% over prior year at £293.6m. The COR is 97.7% which reflects the impact of the current year Discount Rate and an unusual run of large claims.

The Engineering business continues to deliver solid results. GWP is up slightly compared to prior year and the COR is in a healthy position.

In Personal Lines the GWP stands at £251.5m which is down compared to the previous year and the COR is stands at 97.9%.

Petplan remains an excellent profitable growth performer. GWP has grown by 11.6% during the quarter and the COR remains at a very respectable level.

There have been a number of business successes during the quarter that are worthy of mention. The Directors and Officers proposition has been refreshed and brokers now have greater product flexibility and increased cover limits, including kidnap, ransom and cyber event cover, as well as an employment practice helpline.

Allianz also announced a partnership with Lightfoot to provide the technology that encourages fleet drivers to adopt a more efficient driving style. The device gives fleet drivers visual and verbal alerts to guide them into safer, more efficient driving. There has been a positive effect in reducing claims and fleet customers benefit from safer, more efficient drivers.

The work with Lightfoot has been recognised in the Fleet World Honours 2017 awards within the ‘Fuels Saving & Management’ category. This partnership is a great demonstration of the commitment to use new technologies to help our customers improve driver safety and efficiency as well as applying a downward pressure on premiums.

The business is committed to promoting inclusion, diversity and excellence, both in the workplace and in the world of competitive sport. The extension of the partnership with The British Paralympic Association (BPA) through to 2020 reflects this focus. The agreement complements the Group’s support of the International Paralympic Committee (IPC) which also now runs until 2020.

In conclusion, the underlying performance during the quarter is in line with the long term profitable growth ambition of the business. The market has clearly entered a new phase but being part of the largest Property and Casualty insurer in the world, together with the strong relationship the business has with the UK broking community, I am confident we will continue to be successful in what will be a challenging year.

Jon Dye

Chief Executive Officer