"All market participants have to face the uncertainty and high volatility of the capital markets. Because of our solid operating results and unwavering capital strength, Allianz is well able to withstand this adversity," said Oliver Bäte, Chief Financial Officer of Allianz SE.

"We remain committed to achieving our operating profit target for 2011 of €8bn, plus or minus €0.5bn euros," he added.

Allianz group’s non-life business was steady despite the significant natural catastrophe losses suffered over the nine months. The group’s non-life combined ratio was unchanged at 97.9%.

AGCS though paid out claims of €1.1bn to clients in the first nine months of 2011. Gross written premiums for AGCS increased by 8% to €3.9bn, up from €3.6bn for the first nine months of last year. This was driven by the integration of Allianz business in Hong Kong, Singapore and South Africa, and by new branches in The Netherlands and Belgium.

AGCS’s combined ratio for the first nine months of this year was 92.6%, against 95% for the same period last year. Mr Theis explained that this was significantly boosted by the continued benefit of extraordinary subrogation recoveries received in the second quarter as property insurers recovered from aviation insurers for the WTC tragedy. AGCS also benefited from the one-off impact of certain multi-year, multi-line ART treaties.

“We have a saying in Germany that you have to let luck come to you!,” commented Mr Theis as he put the numbers into context. “2011 is a challenging year. Look at the natural catastrophe events, they seem to come quarter by quarter. This year may still become the most expensive year so far and of course we are now dealing with Thailand which will be a significant loss to the market,” he told CRE.

“We have to be honest disclosing that,” said Mr Theis on the extraordinary boost to the combined ratio. “On an average year we assume run off of 4-5% mainly from the long tail liability book. However in 2011 we had an extraordinary subrogation recovery coming from the WTC loss under which all involved property insurers managed to negotiate with the aviation insurers a settlement and recovery. This pledge was released in the second quarter and helped us to show these results. Without the subrogation the combined ratio would be nearer to 100%. I hope that 2012 will be more of a normal year in terms of losses. Normally we expect natural catastrophes to account for about 3-4% of the loss ratio but over the last two of years it has been higher than 7%,” he explained.

Mr Theis did not offer a firm prediction for the pricing outlook for the European corporate insurance market but suggested that the wider forces at play currently will make it increasingly difficult for the big insurers to renew business on existing terms.

“This is difficult to forecast for sure but if you look at the overall ratios for the market it does not look great. The experts said that the market opened the year with excess capital. S&P is now saying that the overall combined ratio could be in the region of 110%. Then if you look at the results posted by other big insurers and the reinsurers and reports from reinsurance brokers such as Guy Carpenter’s regular catastrophe report you see that a large proportion of underwriters have lost capital in 2011 by double digit figures,” Mr Theis told CRE.

“There is still plenty of capital and capacity around but you have to say that there is a potential tsunami both on the loss side due to natural catastrophe events and on the capital base due to low yields and write-downs. Most expect the asset side to be difficult for the next 24 months and some predict that it will be difficult for the longer term,” he continued.

Mr Theis explained that when AGCS was created it was decided that the volatility in the business should come from the underwriting side not the asset side and so it has a very conservative investment portfolio.

“This strategy is now paying off. But looking forward if the investment result is averaging 2-3% this is still less than previous years and from a cash flow perspective this means that people will have to cut capacity or charge higher prices. The question is how long are shareholders prepared to deal with negative investment results and shrinking investment income?” he asked.

Allianz Group’s investment portfolio actually increased to €457.4bn from €443.9bn as of 30 September last year.

The company stated that of this total, some €413.5bn is in fixed income investments, and Allianz has ‘very low’ exposure to critical Euro Zone sovereign debt.

Only 1.6% of these investments are in Greek, Spanish, Irish or Portuguese sovereign debt and Allianz has already written down its Greek government bonds to 38.9% of nominal value, it stated.

Italian sovereign debt totals 6.2% of the total fixed income portfolio. Allianz’s overall exposure to these five countries’ government debt is therefore 7.8% of the Group’s total fixed income portfolio.

AGCS exposure to sovereign debt risks of critical European countries is ‘close to zero.’

Less than 0.4% of AGCS’s asset portfolio of €9.2bn is invested in peripheral Euro-Zone sovereign bonds. “This means around €26m in Italian sovereign bonds and €6m in Spanish sovereign bonds,” stated AGCS.

AGCS does not hold any Greek, Portuguese or Irish sovereign bonds.

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