Download The "new normal"

Michael Diekmann, CEO
The “new normal” –
challenge and opportunity
Merrill Lynch Banking and Insurance Conference
London, October 2009
1
The “new normal”
2
Challenges and opportunities
3
Summary
© Allianz SE 2009
Agenda
2
The “new normal”
Megatrends remain, but industry has to prepare
for the “new normal”
Megatrends
Demography
Climate change
Digitalization
New normal
Lower growth
Higher risk aversion
Implications
More regulation
Æ Capital strength and
brand matter
Higher capital requirements
Æ Operational efficiency
and scale key
Lower recurring investment yield
Æ Keep diversified and high
quality investment portfolio
Inflation / deflation (?)
© Allianz SE 2009
Æ BRIC gain importance
Higher accounting volatility
3
The “new normal”
Allianz Group at a glance1
Split of revenues, operating profit and customers3
EUR 93bn total revenues
28% 31%26%
EUR 365bn insurance assets
9.7%
4.5% 4.6%
Germany
EUR 703bn 3rd party AuM
17% 19%
EUR 7.4bn operating profit
8%
35% 30%
New Europe
28%
Anglo-Broker-Markets
26%
Western
Europe
EUR 34bn market cap
6.9%
1.8%
1.6%1.6% 2.3%
Latin America
75mn customers
Asia-Pacific
0.2% 0.2% 0.2%
Africa, Middle East
Revenues
10.5%
6.5%
n.a.
© Allianz SE 2009
161% solvency
ratio2
Specialty insurers4
Operating profit
Retail customers
1) All figures as per 12/2008
2) After sale of Dresdner Bank completed
3) Including non-consolidated companies
4) Allianz Global Corporate & Specialty, Euler Hermes, Mondial Assistance, ART
4
The “new normal”
Top 6 positions in 44 local and 4 global markets
with well diversified distribution
Countries where Allianz is among Top 6 based on market share
Distribution mix of Allianz (GPW 2008)
Other
Car (2%)
Direct (1%)
Banks
6%
11%
Agents
Group
GPW
36%
EUR 89 bn
Broker
36%
8%
Other
proprietary
networks
P/C OE
L/H OE
© Allianz SE 2009
Global Lines:
AGCS, Euler Hermes, Mondial and AGI
L/H and P/C
Note: L/H and P/C per country counted as separate markets; Brazil – market position for Health
5
The “new normal”
Solid performance in the crisis
Q1
2007
Q2
Q3
Q4
Q1
2008
Q2
Q3
Q4
1
2009
Q1
Q2
Operating profit (EUR bn)
DJ STOXX 600
Operations
2.9
2.2
2.6
2.6
2.2
High earnings
resilience
2.7
1.6
0.9
1.4
1.8
Well diversified
Impairments on insurance debt investments (in bps)
DJ STOXX 600
Investments
12
0
0
1
0
1
2
1
2
3
High quality
of fixed income
portfolio
Solvency ratio (in %)1
Capital
191
166
158
161
100%
1)
151
158
157
161
159
159
Solid
capitalization
throughout
the crisis
© Allianz SE 2009
DJ STOXX 600
Q4 2008 pro-forma after sale of Dresdner Bank completed
6
The “new normal”
Allianz strategy basically unchanged …
Operations
Investments
Capital
u
Long-term savings (L/H, AM)
u
Profit strengthening
u
Risk management (P/C)
u
Geographical footprint
u
Well diversified by regions, customer
groups and distribution channels
u
Complexity reduction
u
Asset allocation determined by liability
structure
u
Solvency protection
u
Risk-adequate investment policy
u
Strong capitalization
u
Capital productivity
u
Transparent capital management with clearly
defined targets and attractive dividend policy
u
Internal growth
u
Very selective M&A
… due to proven 3+One priorities:
1
Protect and enhance capital base
2
Substantially strengthen operating profitability
3
Reduce complexity
© Allianz SE 2009
Management focus
+ Increase sustainable competitiveness and
One shareholder value
7
1
The “new normal”
2
Challenges and opportunities
3
Summary
© Allianz SE 2009
Agenda
8
Challenges and opportunities
Combined ratio H1 2009 mirrors crisis,
improvement potential remains
temporary (?)
2-3%
Measures
§ Bersani
►
Review portfolio
§ Credit insurance
►
Review terms and conditions
§ Small NatCats
►
Review reinsurance attachment
points
- Lower growth
►
Cut expenses
- Fraud
►
Investigate fraud
§ Recession
structural
run-off
-2%
Combined ratio
H1 2009
…and push
Group initiatives!
§ Claims inflation
►
Increase prices …
§ Infrastructure
investments
►
… and productivity
§ Change in
business mix
►
Optimize distribution
and reduce complexity
§ Cycle
►
Maintain conservative reserving
© Allianz SE 2009
99%
Headwinds
9
Challenges and opportunities
Favorable a.y. loss ratio, but no room for
complacency
P/C loss ratio Allianz vs. peers H1 09 (%)
78.4
Loss ratio a.y.
73.4
73.0
n.a.
Run off ratio
70.4
Loss ratio c.y.
AZ
P1
P2
P3
u
Favorable accident year
loss ratio
u
Sustainable run-off results
u
Improvement of expense
ratio remains key
28.0
27.7
27.4
AZ
P1
P2
25.6
© Allianz SE 2009
P/C expense ratio Allianz vs. peers H1 09 (%)
P3
Source: Company information. P1 = Peer 1 etc. Run-off ratios shown on the slide indicate positive run-off results.
10
Challenges and opportunities
An organization in transition …
Global identification and
implementation of best-practice
Sustainability
Claims, underwriting, distribution
Customer
Focus
Initiative
Growth
Profitable
growth
Costs
Productivity
Operational
improvement
Transformation via process
Program
optimization
and standardization
Efficiency
Target
Operating
Model
© Allianz SE 2009
Customer
loyalty as
management
KPI
Global customer centric
harmonization of
business structure
11
Challenges and opportunities
… with market management as central
steering tool
Target Operating Model
Customer segmentation
Central Functions
Motor
Production
Market
Management
Customer
Best Tied
agers agents
Distribution
Operations
Market management
Channel
© Allianz SE 2009
Product
Distinctive product, pricing and channel strategy
based on current and expected profitability for
each customer sub-segment
12
Challenges and opportunities
Further integration of global business segments
Merger of insurance activities into one carrier with branches throughout
Europe
§ Simplified management structure and regulatory handling
§ More efficient capital management
Establishment of the Euler Hermes World Agency
§ Central support of multinational clients
§ Integrated management system for cross-border solutions
Integration of marine insurance business into AGCS
§ Creation of one of the world’s largest specialized insurers with GPW of
USD 1bn
§ Alignment of company structure with industry structure
© Allianz SE 2009
AGCS
Marine Business
13
Challenges and opportunities
P/C wrap-up: Resilient business with upside
potential
Current status
The new normal?
Æ Maintain strict U/W
discipline
§ Strong market positions
§ Sustainable run-off
Pressure on
§ Growth
§ Claims
§ Expenses
§ Traditional channels
§ Well diversified
But
§ Best in class a.y. loss ratio
Our response
Æ Short-term measures
(loss leaders, fraud
investigation)
Æ Push Group initiatives
Æ New tied agent formats
© Allianz SE 2009
§ Solvency II may lower
capital charge
14
Challenges and opportunities
Leverage on excellent L/H position …
Current status
The new normal?
Our response
§ One of the best brands
Æ Maintain financial strength
§ Outstanding financial
strength
Æ Focus on long-term
savings and decumulation
§ Strong market position in
Europe and Asia
Pressure on
§ Growth
§ Investment income
§ Capital
Æ Flexible and fast(er)
adjustment of pricing
and product design
§ Well diversified
© Allianz SE 2009
Æ Conservative pricing and
risk management
15
Challenges and opportunities
… benefitting from Pimco success story
AuM in USD bn
Outperforming AuM in %1
810
Net inflows in USD bn
§ With USD 810bn AuM one of the leading
fixed income managers worldwide
707
CAGR
17%
706
§ Superior investment performance
626
557
§ Strong and resilient net flows
471
§ Other segments benefit from Pimco’s
fixed income management for Allianz
Group
398
324
241
216
99%
98%
10
15
2000
1)
2001
97%
61
2002
97%
98%
43
45
2003
2004
96%
74
91%
43
2005
2006
91%
22
2007
49%
73%
42
53
2008
© Allianz SE 2009
§ Total Asset Management segment
with highly competitive CIR
1H09
3-year-rolling performance
16
Challenges and opportunities
Investments: Pillar of strength in volatile
environment
Conservative asset allocation (30.06.09)
Investment portfolio
EUR 383bn
§ Determined by expected liability cash
flows
Debt instruments
89%
§ Fixed income portfolio:
- 87% at least A rated
- Limited impairments (5 year Ø 7bp)
- Adequate liquidity
§ Excess solvency higher than
net equity exposure
§ 5% growth since year-end
§ Well prepared to participate in market
for renewable energy, clean
technology and carbon
© Allianz SE 2009
Cash/Other
2%
Real estate
2%
Equities
7%
17
Challenges and opportunities
Capital: Strong capitalization will remain key
u
Strong capitalization:
159% solvency ratio in Q2
u
Low sensitivity:
even after 30% equity
market drop solvency
ratio still at 146%
The new normal?
Solvency II
u
Capital constraints for
local players1?
u
Higher capital charge
for L/H?
IAS 39 replacement
u
u
Attractive dividend
u
Economic capital:
2/3 of capital consumed
by P/C
u
Maintain conservative
capitalization
u
Focus on internal
growth
u
React flexibly on
potential changes
in capital charges
u
Continue optimization
of capital structure
Higher accounting volatility
from equities?
Customers
u
Our response
Higher demand for risk
transfer products
© Allianz SE 2009
Current status
1) According to S&P 25% of insurance companies are undercapitalized under Solvency II framework
18
Challenges and opportunities
Capital: Transparent capital management
FCD solvency ratio
= Allianz comfort level
50%
= Aspired stress buffer
100%
= Minimum requirement
159%
§ Intact Group stress buffer
§ Group solvency ratio immunized
against interest rate changes
§ Clear definition of excess capital
Target
© Allianz SE 2009
170%
150%
2Q
2009
19
1
The “new normal”
2
Challenges and opportunities
3
Summary
© Allianz SE 2009
Agenda
20
Summary
Underlying operating profitability
(EUR bn)
~1.0
~8.0
~2.4
~ -0.8
§ Based on normal market
conditions (concerning revenue
growth, financial markets, credit
insurance, fraud related claims,
asset management, exchange
rates, etc.)
~1.5
~3.8
~1.6
P/C
~0.9
Assumption: No realized
gains/losses
§ Combined ratio at aspired overthe-cycle average
Assumption: No DAC write-off
§ Disclaimer: Impact from NatCat
and financial markets not
predictable!
Assumption: 96% CR
L/H
AM
Corporate +
Consolidation
Group
© Allianz SE 2009
~5.4
§ No forecast
Investment result (dark)
Technical result (light)
21
Summary
Key take-aways
Strong capital base
Transparent capital management
Conservative investment portfolio
Resilient business model
Well positioned for global mega-trends
© Allianz SE 2009
P/C under attention
22
Disclaimer
These assessments are, as always, subject to the disclaimer provided below.
© Allianz SE 2009
Cautionary Note Regarding Forward-Looking Statements
The statements contained herein may include statements of future expectations and other forward-looking statements that
are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that
could cause actual results, performance or events to differ materially from those expressed or implied in such statements.
In addition to statements which are forward-looking by reason of context, the words "may", "will", "should", "expects",
"plans", "intends", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" and similar expressions
identify forward-looking statements. Actual results, performance or events may differ materially from those in such
statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the
Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, and
including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from
natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v)
persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the
Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including
monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign
governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv)
general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be
more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The matters discussed
herein may also be affected by risks and uncertainties described from time to time in Allianz SE’s filings with the U.S.
Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statement.
No duty to update
The company assumes no obligation to update any information contained herein.
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