Good morning, ladies and gentlemen, and welcome to today's telephone conference of Allianz SE on the occasion of the publication of the financial results of the first quarter 2019. For your information, this conference will be recorded. With this, I would like to hand over to Holger Klotz.
Thank you very much, Saskia, and good morning also from my side. Welcome to today's phone conference on the results of the Allianz Group in the first quarter of 2019. As usual, our CFO, Giulio Terzariol, will guide you through the quarterly results and answer your questions afterwards. And with this, I would like to hand over to Giulio Terzariol.
Yeah, thank you. Good morning also from my side, and I'm glad to be able to present to you the figures of the first quarter 2019.
We can directly move to page three, and as you can see, we've had a good start, or a very good start, even into the year 2019. All the KPIs on this slide point upwards. We had an increase in operating profit of 7.5%, driven by P&C, with an internal growth rate of 4.6%, just as well as Life/Health with a growth rate of 11.5%. The income in Asset Management was declining, but that was mainly due to the market development in the fourth quarter of 2018. The operating profit grew by almost 8%, or around EUR 200 million, and the main driver for that was the combined ratio in Property-Casualty, and then the shareholders' net income grew by close to 2%. That was mainly due to the improvement of the operating profit, and the non-operating realized gains and losses were lower than in the previous year's quarter.
But overall, you can see we've had a good increase of revenues, a very good improvement of operating profit, and also an increase of shareholders' net income. Another comment: if you look at the EUR 3 billion operating profit, that is quite well compared to the EUR 11.5 billion that we've given as guidance for the overall year. And with this, I would like to move to page five, where you can see the development of our shareholders' equity and the solvency ratio. So shareholders' equity, according to IFRS, grew by EUR 6 billion. The main driver for the increase of shareholders' equity was higher unrealized gains and losses, and due to the development of the markets in the first quarter when interest rates went down and equity markets went up. Now, looking at the solvency ratio, you can see that our solvency ratio decreased by 11 percentage points.
Two main drivers for that had already been anticipated, so on the one hand side, we had deduction for the buybacks, which reduced our solvency ratio by 4 percentage points, and then we had also already anticipated that we would have model changes to the tune of 3%-5%. So as you will see in one second, we had an effect of 4% from model changes, so if you combine those two effects, the solvency ratio at the end of the year 2018 would have been at 220, and then 218, as you can see, is more or less on the year-end level, therefore. On page seven, you can see further explanations for what I've just talked about. The model changes are already talked about, then the effect of the buyback and the burden of 4.5% is contained under the item capital management and management actions.
Then two more effects: our organic capital generation was at 6%. That's pre-tax and after-tax and dividend. The figure is at 2%, which is in line with our expectations in view of the growth rate that we currently have. And then market changes: that was -3%, or after-tax even -4%. And here you have to take into account that the developments of the capital markets weren't necessarily positive for the solvency ratio because interest rates declined significantly in Germany. The Bund, for example, even was in negative in the area of a negative interest rate. But as I said, the main drivers were the buybacks and the regular model changes. And if you look at the solvency ratio of 218%, it is still at a very good level. With this, I would like to switch to page nine.
On page nine, you can see the figures for selected OEs in P&C, and here we're talking about our internal growth, so overall, we grew internally by 4.6%, and 40% of this growth stems from price developments, and 60% were due to volume improvements or volume changes, and as you can see, we grew almost across the board, and you can also see that the price environment, also looking ahead, seems to be stable, so as you might remember, we had a very good year 2018, and the first quarter 2019 confirms the positive trend that we saw over the course of the past year. On page 11, you can see the development of our operating profit in P&C. That went up 14%, which was mainly due to the improvement of our combined ratio. The combined ratio improved by 1.1 percentage points.
The main driver for the improvement of the combined ratio was a lower burden from natural catastrophes, so 1.5 percentage points improvement there, and we also saw an improvement of the expense ratio. This was countered by a higher burden from major claims of 80 basis points. But overall, the results improved. Our runoff ratio remained stable at around 3%. Overall, I would say that we have a stable—we had a stable development, a good development in the first quarter, with less burdens from natural catastrophes, and what's always good is that we also had an improvement in our expense ratio. Page 13 now shows the development of operating profit for the selected OEs, so you can see a significant improvement in Germany.
That's not only due to the fact that we had less NatC at than in the past year, but also because major losses were lower as in the previous year. And on the other hand, the cost ratio has also improved. In France, the improvement was mainly due to a lower number of natural catastrophes. You can also see an improvement in Italy. But if we had adjusted this for the spin-off of Genialloyd, the results would have been stable on a better level. In Spain, we had a decrease that was due to the change of the runoff result there, which was positive in the previous year and has turned negative this year. Then in Turkey, you can also see a decline of the combined ratio, but that's only to do with the inflation and is also compensated for by a higher investment result.
Revenues in local or profit in local currency grew by 20%. There are just special effects due to the development of the capital markets and the economy as a whole in Turkey. In AGCS, you can see a decrease compared to the first quarter of 2018, but you know that the combined ratio of AGCS at the end of the year was at close to 102%. The combined ratio that you can see here is more or less in line with the performance that we saw in the previous year. Then we also see an improvement in the combined ratio of both Allianz Partners and Euler Hermes. As always, there are positive and negative developments, but overall, in the quarter, we've seen quite a stable development, robust development, and the combined ratio is on a quite good level.
Page 15, when it comes to the operating investment result, I would say it's stable, which is good news. We always assume that the capital investment result in P&C will go down, but so far we've seen a certain degree of resilience and stability, which was especially pronounced in the first quarter of 2019. With this, I would like to move to Life/Health . On page 17, in the segment, the production overall grew significantly. We had a growth rate of around 18%, which was driven mainly by Germany, but also by the U.S. The figures in the U.S., adjusted for foreign exchange effect, we would still have a growth rate of above 20%. We only saw a declining development in Italy due to the production of unit-linked products, which we had expected, and also in Asia.
We suffered a bit in our banc assurance channel, but that was quite normal for Asia. So overall, we had a great growth rate of production, which is also good because this new business growth comes in line with a higher margin, which increased from 3.3% to 3.5%. So overall, a very good quarter, and looking at page 19, you can see the positive image or the positive development of operating profit. Our operating profit in the first quarter grew by 2.5%. The investment margin was declining, but we had expected this, but it was balanced by higher fee income and by the fact that we had less impairments, which was due to the development of equity markets. So if equity markets are doing good, then basically we have less impairments on our capitalization costs, and that was true for the U.S.
And if markets are worse, then you will have higher impairments. So market conditions in this quarter generally were rather positive, and that helped us and added to support our operating profit in the quarter. So overall, our guidance for the Life/Health segment is EUR 4.2 billion for the year, so with EUR 1.1 billion. We're quite on track to reach this forecast. Page 21 now, here you can see the most important KPIs in the selected units for new business and new business margin. First of all, the value of new business grew by 25%, and as you can see, almost all units contributed to this improvement in the value of new business. Now, when it comes to the operating profit, I would like to focus on the first three OEs.
First of all, you can see a reduction of operating profit in Germany, but this was more a normalization compared to the high level in the previous year. In the United States, you can see a clear increase, where I would say it's also normalization, but in this case, the other way around, because last year the revenues were extremely-or the operating profit was extremely low. In Asia Pacific, you can see improvement, which is due to growth of the region, but also due to the fact that we sold our legacy book in Taiwan. So we no longer have any negative effects from this legacy book there. So overall, good performance of our life health segment, and we're well positioned to reach our guidance for the year. Page 23 now, here you can see the investment margin that is four basis points below the previous year's level.
If we look at the annualized calculation, that would be slightly below our bandwidth of 80 to 85 basis points for the year. You have to take into account that the reserve basis has grown stronger than we had anticipated, and that creates a certain balance, at least if you look at the overall picture. Page 25, and here we can talk a bit about the Asset Management segment. First of all, the assets under management grew by 8%. Here we certainly benefited from the capital market development, including the foreign exchange effects on the devaluation of the euro or the upward trend of the dollar, which was positive for our assets under management. Equities and also bonds went up over the course of this quarter, but the development wasn't just due to these capital market factors.
In addition to this, we also had very positive net inflows, especially at PIMCO, where we had more than EUR 20 billion of net inflows, so a very positive development. Page 27 shows our revenues. Our revenues remained stable, but if you adjust that for foreign exchange effects, you can see that there was a slight decline. One special effect included in this, which explains half of the reduction, I would say, in income, and the other half was due to the development of the capital markets in the fourth quarter of 2018, which led to the fact that the average asset base in the first quarter of 2019 was lower than the asset base that we had in the first quarter of 2018. So having said that, the markets in the first quarter went really well.
So the asset base for the second quarter is now significantly higher, 3% higher compared to what we had on the average for the first quarter. So that should support our results then for the second quarter. Now, page 29 shows the operating profit reduction of 4%, or according to our internal calculations, a minus of 10%. The development was mainly due to PIMCO. And here I would say, on the one hand side, we had this special effect or one-off effect, and what I'm talking about here is basically an investment which should lead or will contribute to our revenues and profits starting from the second quarter. And the rest of the development is due to the lower asset base that I've already talked about. And also the expense ratio in 2018 in the first quarter was especially low.
This was not the expense ratio we would usually expect at PIMCO, so there was a certain base effect through this, so overall, for the Asset Management segment, our forecast for the year is EUR 2.5 billion, and we're optimistic that, or quite confident that we will reach the EUR 2.5 billion. First of all, the asset base, as I've said, has already grown. A lot of performance fees will be coming towards the end of the year. So all in all, we're confident that we can reach our guidance of EUR 2.5 billion for the segment. Page 31 shows the operating loss development in the corporate segment, and with this, I would like to move directly to page 33, where, as usual, we showed the development of non-operating items, and as I said before, the realized gains and losses were lower than in the previous year. The impairments remained more or less stable.
The situation on the financial markets, at least in the first quarter, was much more positive than we had in the fourth quarter of the year 2018. Recovery there. There were no special effects in the other areas. One comment on the effective tax rate, that is at 25%, which is at the lower end of our bandwidth of 25%-27%. With this, just a summary now on page 35. I can only repeat that we had a good start. Let me repeat this once more. We've had a good start into the year 2019, and I confirm that we're well on our way to reach the forecasted EUR 11.5 billion of our guidance. Now I'm looking forward to your questions.
Those who have any questions? Just one minute.
Ladies and gentlemen, if you want to ask a question, please press star or asterisk on your keypad and the one. Please make sure that you've deactivated the mute function so that your signal can reach our devices, and we would ask you—we would like to tell you that your line will be permanently open when you ask your question and will only be muted once again when we come to the next question, so please press star one to ask a question, and we'll now wait a minute or a second to give everyone time to signal their questions. Our first question for today by Stefan Weier of DPA.
Good morning, Mr. Terzariol. Two questions. During the merger talks of Commerzbank and Deutsche Bank, there was a lot of comments in the press that Allianz was interested somehow. So did you look at this at least?
Were you interested? So I heard that Allianz people were walking around the building of DWS, and that's what I've heard. And the second question on Boeing, the burden seems to be quite manageable for you with the crash and all the questions regarding product liability and so that and all the damages that Boeing will need to pay for the fact that their planes can start. So as we don't know how long all of this might take, could there be a higher loss for Allianz in the future, or is there a certain cap to your liability?
Okay, the first question, employees of Allianz walking around at DWS, maybe they were looking for jobs there. I don't know.
I can't talk about what we've done or haven't done, but I can just answer in general that when it comes to acquisitions in asset management, of course, if you were to take a major acquisition, that would certainly lead to cost synergies, but you would always have to consider what the potential dis-synergies could be because they can be material in asset management. That's everything I can say. Major acquisitions might look good on PowerPoint, but in real life, they don't necessarily have to work that well. I can tell you that I certainly didn't walk around the buildings of DWS. I can confirm that. When it comes to Boeing, we currently have reserves of around EUR 50 million for that. You talked about product liability.
Well, it could be that in this area we will see a bit more, but it'd be too early now, as you already mentioned, and we haven't received any notifications. But it could be that this amount might go up, but I wouldn't expect any significant increases of reserves regarding product liability. So it should be a restricted amount, but we cannot exclude that either next quarter or over the course of the next years, we might see an increase of the losses there. But as said, this should be moderate or restricted from our point of view.
Thank you very much.
Thank you. Our next question now from Alexander Hübner of Reuters.
Yeah, good morning, Mr. Terzariol. Two questions from my side as well. One, a follow-up on DWS. You talked about major acquisitions in asset management.
DWS with a value of EUR 5 billion, would that be a major acquisition for you, or isn't that rather for a company the size of Allianz? Wouldn't that be too small, just theoretically speaking? And the second question, in your forecast, you're always quite conservative. If I look at the analysts' forecasts, they are close to EUR 12 billion already. And how do you feel about this?
Well, DWS and EUR 5 billion, whether that's large or small, well, I'd say EUR 5 billion is quite a bit. So an acquisition of EUR 5 billion would certainly be considered a major acquisition from my side. And then regarding the forecast, yeah, of course, EUR 3 billion, we're well on track to reach the EUR 11.5 billion that was given as guidance. But you always have to take into account that we're only in May. A lot can happen, natural catastrophes, for example.
We know that the season for NatCats, the main season is in September and October. And honestly speaking, last year we had hail in Australia and something in Germany storm on the 23rd of December. So there's always something that can happen. And also capital markets, we're not that hugely dependent on the capital market development, but nevertheless, the development of the capital markets can nevertheless affect our result to a certain degree and also deteriorate it to a certain degree. So that's why we remain cautious and then look at how the markets will develop, how many natural catastrophes will occur. And should there be a need, then we can always revise our outlook.
Thank you very much. Next question, please. Our next question comes from Herbert from Süddeutsche Zeitung.
Good morning. I would like to know, what is the theoretical overall claim?
Did I understand $50 million you have reserved? And up to when? Because you showed up to what could it go? Münchner Rück mentioned $100 million. Do you have a similar value for the upper limit? Then I would like to know why the AGCS result is still not better, whether the merger discussions with Euler Hermes are being pushed forward, and how this would have an effect on the result if you would make such a merger. Life Insurance Germany, plus 40% new business, it's almost frightening. So is that business that you definitely need? And also AGI, slight decrease in the inflow. Why that?
So the first question yes, good morning. The first question was at Boeing. The maximum exposure would be $150 million at Boeing. But I also see this is rather unlikely. But let's assume the $50 million would become $150 million.
That would definitely be something we are able to sustain. But that would be the maximum exposure that we could have after consideration of the reinsurance. Then the topic AGCS or why it takes before we would have a better combined ratio. Basically, that is a question of the price development and also the measures that we are taking in order to refurbish the business. That takes a little time. And what we do see in the industrial insurance, prices are increases. That's what our peers have reported. We do see that as well. But definitely, the results on the combined ratio will come over time because of the premiums earned versus booked premiums. You always have to consider the price development is one thing, but you also have to consider that there is a certain inflation.
So we simply have to wait and see to what extent this price development will maintain or become even stronger, as I hope, and the measures initiated will definitely unfold its effects over time. I'm not surprised to say this, that at AGCS, we still have a combined ratio of 99.7%, so roughly 100%. The topic is to what extent will we be able to improve in 2020-2021? As you know, we have got a combined ratio target of 96% in 2021. I also believe the 96% can be achieved in particular when the price development will continue as we see it now. But definitely, there's still more homework to do for us. The topic of merger discussions between Euler Hermes and AGCS. We will focus mainly on the capital synergy and capital synergies that we can lift.
And definitely, we're going to cooperate in terms of products and sales. And we will use this cooperation and focus on that. Yeah, that will be the focus momentarily as regards the cooperation between AGCS and Euler Hermes. And then you had one question on the growth rate of life insurance in Germany. Yes, 40%, that is quite a number. And out of that, one-third comes from large-scale amounts. And these large-scale amounts cannot be booked each quarter. So how we feel with that? We feel good with that. The margin in Allianz Life is very good with 3.9%. And also in the guaranteed scenario, the margin is rather good and very good, I should say. And so that's why generally we are very happy with the development of the production and also with the margin that we get on the production in Germany.
Then you also asked AGI, and that was the question. The net inflows were going down. Yes, that's the case in AGI, and that is because of both the fixed income portfolio and also from shares. You have to consider two things. Markets haven't always been easy, but also in AGI, in the fourth quarter of 2018, the performance was slightly weaker, which had an influence, obviously, on production. But you do see that in first quarter, the performance has risen and became better. But in AGI, to be rather careful when it comes to net inflows for the further quarters. Having said that, you see still AGI made an increase of the operating profit, which at the end of the day is something that counts, and that's important. If you could say that, whether you still want to conclude Euler Hermes and AGCS, can you repeat that, please?
Yeah, do you want to complete the merger 2019, the AGCS and Euler Hermes acquisition merger?
By the way, we've never said that there's going to be a merger of Euler Hermes and AGCS. We want to focus on the capital synergies without having a merger of Euler Hermes and AGCS. So we can also merge entities which are not necessarily entities of Euler Hermes and AGCS. But it's more about the cooperation in products and sales. But we never talked about a merger. So you could imagine that or can assume that we're not going to have a merger because we never called it a merger.
Thank you. Asterisk want to make a question, and we'll still wait for Financial Times. Has our next question?
Yes, good morning. I have two questions.
The first relates to the decline in operating profit in Asset Management because you're saying that was because of growth investments, if I got it right. Is that a trend that you see will be maintaining, or it's just a wow effect? If you could explain on that a bit. And my second question relates to N26, the online bank where Allianz is one of the investors. And because of the BaFin, then the special audit, and also because of customers where the account was emptied and they couldn't reach the bank for days. So how do you assess currently the operating of N26? And is that a problem that you encounter when you grow fastly? Do you worry about that? And also the question is whether you regret the investment.
The first question was regarding the development of operating profit in PIMCO and the new investments. I would differentiate.
There are new investments in terms of we invest more into sales, technology, and PIMCO. We've been doing this for quite a few years, which also means that when you take out the special effects and the cost-income ratio that we see in the level this year and first quarter of 2018, the cost-income ratio was simply too low as compared to what we normally had, so we have this basic effect, but more specifically to the first quarter of 2019, and that's a specific investment. We've got closed-end funds on the market, and they've got placement fees, and these placement fees cannot be capitalized, and they have to be put into the P&L. And so we talk about EUR 20 million operating profit effects. But this closed-end fund will also generate considerable fees for us. If you see the business case, that's totally positive.
And only the accounting works that way in that case. So the acquisition costs will not be capitalized. That means we have less profit in the quarter. On the other hand, we're going to have more profit in the future quarters because there will not be any payments because we haven't capitalized. That's a special effect. But it's a truly good business case. So if you ask me, the development at PIMCO is definitely good. So if you analyze the figures and understand the figures, I can tell you that's a good development at PIMCO. Then you asked on N26. First of all, how happy we are with the operating costs. The answer, yes, because they're gaining customers, so that's why we're happy. And as you realized, they had a few problems as regards the safety, security standard, and the availability for customers.
And of course, these problems have to be remedied. And obviously, N26 is working on it. The question, is that normal? I think to a certain extent, it can be normal that happens again and again. But it doesn't mean that N26 does not take these topics seriously and has definitely initiated all the measures in order to remedy the problem. So the question, whether we're happy with the investment of N26? Yes, we're happy with the N26 investment. And it's important to note that we're going to see how we can work with N26 in terms of sales of our products. So it's not only a financial investment in the long run. This should also turn into a true further develop into a true cooperation.
Thank you very much. Ladies and gentlemen, Asterisk one, please press that in order to ask a question. Please ask your question.
Thank you. We will take the next question from Ben Dyson of S&P Global Market Intelligence.
Hi there. I just have a quick question about, there have been some reports in the press that you are looking to buy Legal & General's home business. And I was wondering if you could say anything about that, first of all, but also if you could say something more generally about what your strategy is in the U.K. general insurance market.
Yeah, so thank you for your question. I can just comment about speculation what we might be buying or not. What I can tell you regarding the U.K,, as you know, we bought in 2017 49% of LV=, Liverpool Victoria. And we had the possibility. So we will go to 70% by the end of the year, which means we're going to have the majority at that time.
Clearly, when we combine Allianz UK and Liverpool Victoria, we have a nice platform in the U.K. We're going to look at doing the integration there and try to leverage on this expanded platform. Clearly, if we had the possibility to add some books to our franchise in the U.K., we're going to look into that. Fundamentally, I will say the presence that we have in U.K. with our original company and with LV= is pretty strong already.
Okay, thank you.
Thank you, Michael. Other further questions?