By Oliver Suess

Allianz SE reported an unexpected decline in fourth-quarter profit as the exit of Bill Gross at Pacific Investment Management Co. (PIMCO) spurred clients to withdraw assets. The shares fell the most in five months.

Net income fell to 1.22 billion euros ($1.39 billion) from 1.26 billion euros ($1.4 billion) a year earlier. That missed the average estimate of 1.41 billion euros ($1.6 billion) in a Bloomberg survey of 10 analysts. Operating profit at the asset-management unit, which includes PIMCO and Allianz Global Investors, declined to 588 million euros ($667.5 million) from 703 million euros ($798 million). Net outflows in third-party assets under management amounted to 236 billion euros ($267.9 billion) for the full year

Outflows “looked much better in January and February than in the fourth quarter” at PIMCO, Allianz Chief Financial Officer Dieter Wemmer said in an interview on Bloomberg TV. PIMCO is beginning to see substantially lower outflows, he said.

Allianz shares slid as much as 4 percent, the most since Sept. 26, and traded down 3.3 percent at 145 euros as of 9:12 a.m. in Frankfurt. The stock has gained 5.7 percent in Frankfurt this year, valuing the Munich-based company at 66 billion euros. The Bloomberg Europe 500 Insurance Index rose 12 percent during the same period.

PIMCO, the Newport Beach, California asset manager acquired by Allianz in 2000, presents a challenge for Oliver Baete, the management board member who will take over as chief executive officer in May. The German insurer has sought to reassure investors, who include BlackRock Inc. and Deutsche Bank AG, that it can contain the damage from the abrupt departure of Gross, formerly the manager of its flagship Total Return Fund. With 1.8 trillion euros in client assets, PIMCO provides a quarter of Allianz’s operating profit.

Gross Exit

Gross’s exit in September from the company he co-founded and helped build into one of the world’s biggest money managers set off a stampede. Outflows continued the last three months of the year, with assets declining about 10 percent to $1.68 trillion in the fourth quarter, the firm said Feb. 3.

Like other insurers awash in capital, Allianz raised the dividend for 2014 to 6.85 euros per share from a 5.30-euro payout for 2013. Allianz was expected to pay 7 euros a share, according to the Bloomberg Dividend Forecast. AXA SA, Europe’s second-biggest insurer, said yesterday it plans a dividend of 95 cents a share for 2014, up from 81 cents a year earlier. Insurers are returning cash to shareholders as ultra-low interest rates erode investment margins.

Full-Year Target

Allianz set a target for operating profit of 10 billion euros to 10.8 billion euros this year. Operating profit rose 3.3 percent to 10.4 billion euros ($11.4 billion) last year. That beat Allianz’s goal of reaching the “upper end” of its target range of 9.5 billion euros ($10.8 billion) to 10.5 billion euros ($11.9 billion) for the year.

Finding a way to further increase earnings will be another challenge for Baete, 49, when he succeeds Chief Executive Officer Michael Diekmann, 60. The latter is leaving after 12 years in the position.

Gross left PIMCO on Sept. 26 to join Janus Capital Group Inc., later saying he was dismissed after clashing with management. It was the second high-profile departure from PIMCO last year. Mohamed El-Erian, who had worked for PIMCO as CEO and co-chief investment officer alongside Gross, left in January last year. El-Erian is now chief economic adviser at Allianz and a contributor to Bloomberg View.

PIMCO’s Total Return Fund, its biggest mutual fund, shrank to $134.6 billion at the end of January, compared with $222 billion at the end of August, before Gross left. That compares with $293 billion at the peak in April 2013.

Trailed Peers

The fund trailed most peers for the second straight year in 2014 after missing a rally in longer-term bonds and betting that inflation would rise. It returned 4.7 percent in 2014, lagging behind 54 percent of comparable funds, according to data compiled by Bloomberg.

In property and casualty insurance, Allianz’s most important in terms of earnings, operating profit declined 27 percent to 1.13 billion euros ($1.3 billion) in the fourth quarter. While “a benign natural catastrophe environment” provided some buffer, reserve strengthening in Brazil, Russia and at Fireman’s Fund in the U.S. weighed on the results.

Allianz said on Dec. 18 it sold Fireman’s Fund, which serves wealthy clients in the U.S., to ACE Ltd. for $365 million after it failed to turn around the business that was established in San Francisco more than 150 years ago and survived the city’s 1906 earthquake. Allianz bought Novato, California-based Fireman’s Fund in 1991 for more than $3 billion. Allianz will now focus its U.S. insurance operations on business clients, a move that it also has announced for the Russian market following “difficult economic conditions”.

Copyright 2015 Bloomberg.