Actually, insurers are there to take risks. That’s why it seems a bit strange when investors think it’s great that an insurance company is reducing the risks it takes on. But that’s exactly what happened to Allianz on Friday.
The group gives a large part of its life insurance portfolios in the US to investors and other insurers, it is about 35 billion dollars. He therefore bears fewer risks from these contracts in the future and needs $ 3.6 billion less capital. However, Allianz will continue to earn money with the policies in the future because it will continue to manage the investments. Analysts and investors think it’s all good, the share is rising, albeit moderately. You have to see what comes out for the customers.
With the announcement of the US reinsurance deal, Allianz CEO Oliver Bäte surprised large investors and analysts who met digitally on Investor Day on Friday. He also promised investors steadily increasing dividends. They should go up by five percent annually – even in difficult times. Allianz expects operating profit to grow by four percent per year, and sales by three to four percent.
In doing so, Allianz is trying to do what is actually impossible, namely to portray the highly volatile insurance business as a reliable profit growth machine. Insurers live from protecting individuals and companies against disasters. Hurricanes, floods, storms, large fires and earthquakes are their core business. But investors shy away from the associated fluctuations in results; insurance stocks are not very popular. That is why Bae’s policy, as in the USA, is to reduce the risks borne by the group itself. The US model is intended to be a model for other markets. In Germany, Allianz has always asserted that it will never give up life insurance portfolios. It will be seen how long the promise holds under the new strategy.
With the shift in strategy, Bäte is also reacting to two current developments: The future accounting rules IFRS 17 will automatically lead to higher fluctuations in the results of insurers, so he wants to take countermeasures. In addition, Allianz has huge problems in the US. There, the US Department of Justice is investigating Allianz Global Investors (AGI), including for fraud. Major investors are suing AGI for at least six billion dollars in damages. The company is said to have abandoned the agreed investment strategy at the beginning of 2020 and thus incurred high losses in the stock market crash at the beginning of the pandemic.
Something like that doesn’t go down well with shareholders at all. Bäte needs a lot of dividend promises and plausible strategy exercises to make up for the headwind.
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