Alliance in the profit trap – economy

Does CEO Oliver Bäte still have Allianz under control? Or does his principle that the stock price and profit are the measure of all things for the insurer lead to laxity in the methods by which this profit is made? This is what some investors and clients are asking after the events of the past few weeks.

First case: Allianz had to announce Sunday that the US Department of Justice was investigating them. These are losses of the order of six billion dollars suffered by American investors with special funds from the subsidiary Allianz Global Investors during the stock market crash of Covid in March 2020. Above all, pension funds are complaining . So far, the alliance had dismissed the allegations as unfounded. Investigations by the highest law enforcement agency in the United States have been a game-changer. Now Allianz’s board wants to investigate the events themselves – nearly 17 months after the accident.

Case two: In July, the Süddeutsche Zeitung revealed that tech affiliate Allianz X had embarked on a major investment with controversial businessman Bensen Safa, accused of having close ties to the money laundering paradise. North Cyprus money.

In both cases, management’s control over the conduct of business did not appear to have worked properly. The same happened at the Englischer Garten headquarters in Munich with industrial insurer Allianz Global Corporate & Specialty, which had serious problems three years ago. Here too, the executive reacted too late to the red flags. At the end of 2019, she then had to resort to brute force to replace management and since then pouring new money into the billions.

From now on, it is almost impossible for a leader to avoid errors and scandals in a financial group with 140 billion euros in turnover and 150,000 employees. A look at the big banks and automakers shows this. Compared to Deutsche Bank or VW, Allianz is almost scandal-free. But that could change. If the American justice finds anything in its investigation of Allianz, a heavy fine will be payable in addition to the compensation of the aggrieved investors. This affects not only the finances of the Group, but also its reputation.

Insurance stocks are not considered particularly attractive

CEO Bäte hates negative surprises that hurt the stock price. The companies in the group must constantly achieve results. Because Bäte has made it a motto that the alliance still delivers the benefits it claims – despite a pandemic, flood, wildfires or other major damage. The idea behind: This is the only way for the group to retain the necessary support from investors. Insurance titles are not considered particularly attractive. They are not bought because the company behind them is pursuing a great business model with a lot of dreams for the future. No, it’s reserved for internet giants and certain start-ups. Insurers, on the other hand, are seen as boring.

In order for investors to buy Allianz shares anyway, or at least keep their papers, the group needs consistently high profits. Thanks to this, it can pay huge dividends and fund multibillion dollar stock buyback programs.

It is likely that Bätes’ method of business management – the main thing is that the profit is fair – is now complete. In addition to the current problems, Allianz has other sites which can be expensive. These include the old German life insurance portfolios, whose relatively high interest rate guarantees hurt. The still too high cost ratios and the false start of German direct insurance are weaknesses that must be eliminated.

An insurer lives by the fact that in some years he has to pay a lot for the damages, others a lot less. This can be shown in profit, shareholders have to bear it. A company management that tries with all its might to smooth out such fluctuations in the bottom line, however, at some point, has big problems. Like Oliver Bäte now.

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