“The financial system is not becoming more secure, it is becoming more dangerous again,” said the Allianz boss.
(Photo: Reuters)
Munich Allianz CEO Oliver Bäte is concerned about the banking and investment industry in view of the developments in the corona crisis. “The financial system is not becoming safer, it is becoming more dangerous again,” warned Bäte at an industry conference organized by the rating agency S&P Global on Thursday.
When it comes to evaluations in the technology sector and the auto industry, one can rightly speak of “irrational exaggeration”. In addition, there would be “accidents” such as the bankruptcy of the supply chain financier Greensill and the hedge fund Archegos. At the same time, the supervisors loosened the reins in banking regulation during the pandemic. “All warning lights in risk management light up red,” said Bäte. Banks are less well equipped with capital and are much more vulnerable in crises than the insurance industry.
He did not mention the losses of the “Structured Alpha” hedge funds launched by Allianz Global Investors, which brought the Munich insurer into billions in lawsuits in the USA. With assets under management of more than 2.5 trillion euros, Allianz is one of the largest capital investors in the world.
Bäte went tough with the EU insurance regulator EIOPA because of their handling of the industry in the corona crisis. The call by the Frankfurt authority not to pay dividends during the pandemic and to stop share buybacks was “a disaster for our industry and must not be repeated,” warned the Allianz boss.
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Giving such instructions without a legal basis is “socialism”. EIOPA has unnecessarily deterred investors and shaken the credibility of the companies, which has led to sharp discounts in insurance stocks on the stock market and to rising capital costs. Bäte spoke of a “total chaos” that the supervisors had created at European level.
Bäte is happy about private capital
On the other hand, he praised the authorities in Germany and Switzerland, who were “super-disciplined” oriented towards the risk-based set of rules and allowed financially strong insurers to pay dividends. Allianz had only suspended its share buyback in 2020 under the impact of the pandemic, but stuck to the dividend with the permission of the German financial regulator Bafin.
The Allianz boss is hoping that financial investors will become more involved in the insurance industry. They could help insurers to lower their cost of capital, for example by stealing old life insurance portfolios from them and thus allowing them to use capital more efficiently.
The capital market also appreciates that. “Private capital is a huge opportunity for us,” said Bäte. For years, Allianz has been selling almost only life policies without long-term guarantees that tie up capital, but it still has high levels of old stocks. Bäte intends to present his strategy for the next few years at an investor’s day at the beginning of December.
More: Points of contention between Allianz subsidiary and US investors: this could be a solution