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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. 23