BusinessTimes
LONDON: Leading insurers AIG, Allianz, ING and Swiss Re are likely to reassure investors this week they have not been badly affected by the subprime woes that have hit top investment banks.
Worries about the impact on insurers of the US subprime mortgage-related crisis have hit shares in the sector in recent weeks. But analysts expect their results, along with those of Munich Re and Aegon, will confirm the industry has been dealt only a glancing blow by the credit woes.
"The insurance results of the large continental European insurance and reinsurance companies should show few of the scars the banks have shown," Credit Suisse analysts wrote in a note.
Insurers have not invested heavily in the subprime-related investments that have caused banks so many problems. And where they are forced to write down the value of these assets, they are likely to have been offset by a corresponding rise in other assets they hold, such as government bonds, say analysts.
For JPMorgan analyst Michael Huttner, the results will divide insurers into two camps: "Those companies with very limited exposure to any part of the credit crunch, and those with some."
Insurers in the second camp are Allianz and ING, which both have banking subsidiaries, while AIG and Swiss Re have units that are exposed to the credit markets.
AIG, the world's largest insurer by market value, has been particularly hard hit by investor's subprime anxieties.
Its shares have lost a quarter of their value in recent months, reaching their lowest level on Friday since June 2005, as investors have sold on worries it may take a large subprime hit in its third quarter earnings next Wednesday.
AIG's wide range of businesses make it particularly exposed to the credit woes, with a unit insuring mortgage-lenders, a consumer finance arm and a financial products unit that could be hit, along with an investment portfolio containing more than US$1 trillion (US$1 = RM3.35) in assets.
AIG officials refused to comment ahead of its earnings, but point to statements made after its second quarter that it was comfortable with the size and quality of its investments.
Allianz and ING have also tried to soothe investor fears about the size of the knock they may take from their subprime-related assets.
Several analysts expect Allianz to take a hit somewhere between US$290 million and US$724 million, largely through its Dresdner banking unit.
But if Allianz were to take more severe action, slashing the value of Dresdner's 5.8 billion euros (1 euro = RM4.85 ) portfolio of super-senior CDOs in the manner of Merrill Lynch, that could lead to a far bigger writedown - perhaps as much as 1.8 billion euros, Merrill Lynch analyst Brian Shea said in a note.
ING said at an investor meeting in September it was not expecting any major hit to its credit portfolio, but a number of analysts have pencilled in a writedown, possibly running into the low hundreds of millions of euros, and say its wholesale banking unit may be hit by the prevailing headwinds.
But any subprime-related hit may be offset by a hefty capital gain from its stake in ABN Amro, analysts say.
Swiss Re has limited exposure in its assets but could see a hit to its unit that insures bond issuers and reinsures some of the big specialist bond insurers.
The writedowns Swiss Re and the other affected insurers may take next week are unlikely, however, to make anything more than a modest dent in their overall group earnings, analysts predict.
Earnings in their core life and non-life operations may be slowing but remain healthy, with strong demand for life products in markets such as Asia and central and eastern Europe, while there have been little in the way of catastrophe losses in the past three months. - Reuters
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