Bill Gross, chief investment officer of Pimco, at the Morningstar Investment Conference in Chicago on June 19, 2014. Reuters


The worst of the storm could be passing for Allianz. But it isn't clear that the German insurance group will emerge on to sunny uplands by the end of the year.

 Pimco, the West-Coast bond behemoth, has been attracting headlines for all the wrong reasons in recent months. That has prompted some to question whether Allianz should sell the group it bought in 2000.

 Such a move would smack of panic for Allianz and risk a knockdown price. After all, the prospect of rising interest rates as well as recent management ructions has driven investor outflows.

 In any case, the insurer thinks its prize U.S. asset is turning the corner. Outflows are slowing—€20 billion ($26.73 billion) left Pimco in the second quarter, which was less than in each of the previous three quarters. Between Pimco and the smaller Allianz Global Investors, assets under management rose in the second quarter compared with the first due to better performance, which lifted earnings by 4.5%.

 The division still saw a weaker first half compared with the same spell last year, however, with operating profits down by €129 million, or 16%, year on year.

 The group remains confident that full-year operating profit will come in closer to the top of its €9.5 billion-to-€10.5 billion target. But analysts are divided on whether this would encourage management to increase its dividend payout ratio above 40% of earnings, a long-standing hope for Allianz investors.

 Allianz put in what looked like a very strong performance in its life and health business, where first-half operating profit was up €315 million, or 47% year on year, and saw a reasonable contribution from nonlife operating profit, up €167 million, or 14%.

 But there are still reasons for caution. The life result was boosted by strong one-time investment gains, particularly from a derivative hedge on European interest rates. Meanwhile, the nonlife result was hit by another charge of less than €50 million, against old losses in another troublesome U.S. business, the Fireman's Fund.

 Interest rates are the other big issue. Given the sluggish European recovery, low rates will continue to weigh on life-insurance profitability. In the U.S., changes in accounting practice around deferred acquisition costs—an intangible asset—and in the kind of products Allianz sells should mean that when rates do rise the benefits to income in its life business are less likely to be undermined by write-downs to intangibles. But Pimco, of course, is still likely to struggle in a rising rate environment.

 At a forward price-earnings ratio of 9 times Allianz trades at a discount to all its peers except French rival Axa. But until Allianz's outlook for Pimco and other parts of the U.S. clears that is unlikely to change.