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Buying Allianz at a Discount: A Contrarian’s Play on Oversold Insurance Stocks

Eli GrantThursday, May 15, 2025 5:54 am ET

66min read

The insurance sector has been a battleground for investors in 2025, with Allianz’s shares hitting a 52-week low of €237 earlier this year before rebounding to near €350—a swing that underscores the volatility in an industry increasingly scrutinized for its exposure to climate risks. For contrarian investors, this pullback presents a rare opportunity: a world-class insurer trading at a 15% discount to tangible book value, despite record profits and a fortress balance sheet. The question is whether the market’s fear of escalating catastrophe losses is overblown—or whether Allianz’s diversified portfolio, capital strength, and reinsurance mechanisms are being undervalued. The answer, I argue, points to a compelling buy.

The Catalysts: Catastrophes vs. Market Sentiment

Allianz’s Q1 2025 results revealed a 6.3% rise in operating profit to €4.2 billion, driven by record performances in its Property-Casualty and Life/Health divisions. Yet shares stumbled as investors fixated on a €395 million spike in catastrophe losses, up from €65 million in Q1 2024. These losses stemmed from wildfires in California, Storm Eowyn in the UK, and severe weather in Australia. While alarming, the combined ratio of 91.8%—below the full-year target of ~93%—suggests the company’s underwriting discipline and reinsurance programs absorbed the shock.

But the stock’s decline wasn’t solely about climate risks. Broader market sentiment played a larger role. U.S. tariff policies, inflation fears, and Federal Reserve uncertainty fueled a 10% two-day sell-off in the S&P 500 in April, dragging down Allianz alongside financial peers. A one-off tax provision linked to its Indian joint ventures also clouded Q1 earnings, though core net income rose 5% when excluding this item.

Why the Market Overreacted: Allianz’s Resilience

The pessimism misses three critical pillars of Allianz’s value:

Diversification Beyond Catastrophe Exposure:
While Property-Casualty headlines dominate, Allianz’s Life/Health segment grew new business premiums by 16.8% to €26.1 billion, fueled by rising demand for retirement solutions. Its Asset Management division added €29 billion in third-party net inflows, demonstrating resilience in volatile markets. These segments now account for 58% of total business volume, reducing reliance on any single risk.
Capital Strength to Weather Storms:
The Solvency II ratio of 208% provides a buffer against even severe shocks. CEO Oliver Bäte notes that a 30% equity market swing would impact this ratio by just ±2 percentage points—a testament to low capital sensitivity. The €2 billion share buyback program, with €100 million executed in Q1, further signals confidence in its financial fortress.
Reinsurance and Pricing Power:
Allianz’s reinsurance arm, Hannover Re, acts as a shock absorber. By spreading risk globally and hiking premiums for climate-exposed policies, the company is monetizing the “flight to trust” amid rising uncertainty. As Bäte stated, “Customers are paying more for protection they can’t afford to do without.”

The Contrarian Case: Buying What the Crowd Avoids

The stock’s current valuation ignores these strengths. Trading at a 15% discount to tangible book value and with a 1.6% dividend yield, Allianz offers a margin of safety. If catastrophe losses normalize (as they have historically), the company’s full-year profit target of €16 billion remains achievable—a figure that implies upside potential of 20% from current levels.

Meanwhile, long-term growth drivers—such as rising global demand for insurance in emerging markets, cost discipline (the core RoE hit 16.6%), and the buyback program—are intact. Even if the Fed’s reluctance to cut rates continues to pressure equities, Allianz’s defensive profile and dividend make it a hedge against volatility.

The Bottom Line: A Discounted Dividend Machine

Investors fleeing Allianz due to short-term catastrophe spikes are ignoring a company that’s not just surviving but thriving. With a robust balance sheet, diversified revenue streams, and a management team laser-focused on shareholder returns, the stock’s dip is a contrarian’s dream. As the market overreacts to climate risks, Allianz’s shares offer a rare chance to buy a global insurer at a discount—before the crowd catches on.

The call to action is clear: Buy Allianz now. The risks are priced in, the fundamentals are strong, and the rebound to €350 proves the stock can climb higher. This is the time to act—before the market realizes it’s already too late.

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