Allianz Says Legal Bill for Investment-Fund Losses May Top $4 Billion

Allianz SE set aside more than $4 billion for legal expenses related to losses incurred by its investment funds during the March 2020 market panic as a result of bad options trades.

Source: WSJ | Published on February 18, 2022

Allianz launches financial lines claims inhouse

The German financial behemoth said Thursday that the 3.7 billion euros in legal provisions, or $4.2 billion, were accounted for in its 2021 results. As a result, Allianz's net income decreased by 2.6 percent to €6.6 billion. The fund losses have prompted investigations by the US Justice Department and the Securities and Exchange Commission, as well as several lawsuits from fund investors.

Last year, Allianz warned that the legal fallout could harm its future earnings.

Allianz Global Investors, one of Allianz's investing divisions, had bet heavily on stock options, effectively selling insurance against a market selloff to other investors. While markets were calm, the firm's strategy had been profitable.

In March 2020, the fortunes of the funds changed dramatically. Stocks plummeted and volatility reached an all-time high, resulting in catastrophic losses for Allianz funds and forcing the firm to close two of its most aggressive strategies.

Following the losses, several investors in those funds, including the Blue Cross Blue Shield Association and the Arkansas Teacher Retirement System, sued Allianz. The company also stated that the Justice Department and the Securities and Exchange Commission were looking into the matter.

Allianz said in a statement that the legal provisions were taken "in anticipation of settlements with major investors in the AllianzGI U.S. Structured Alpha funds and in light of current discussions with U.S. governmental authorities."

Allianz stated that it cannot predict its total legal costs and that it expects to "incur additional expenses before these matters are finally resolved." Allianz also stated that it expects to reach settlement agreements with major fund investors in the near future.

Allianz reported a 25% increase in annual operating profit to €13.4 billion. Revenue increased by 5.7 percent to €148.5 billion, or $168.7 billion.

"Despite challenges in 2021, Allianz demonstrated its resilience and adaptability," said Allianz CEO Oliver Bäte in a statement.