The Sparkasse fund house is one of the largest institutional shareholders in Allianz. Like Speicher, a number of his colleagues see it. Their reluctance is also due to the continuing lack of clarity about possible payments in the event of failed hedge fund strategies in the USA.
Allianz presented its strategic plan up to 2024 on Friday under the motto “Simplicity at Scale”. CEO Bäte and other top managers presented corporate and financial goals in a four-hour program. It was about the potential that Allianz, unlike many in the industry, sees in life insurance, improved capital efficiency, a steadily increasing dividend and further share buybacks.
On the stock market, the announcements had made the Allianz price on Friday the biggest winner in the Dax in the meantime. “Clear progress has been made since the last strategy program,” says LBBW analyst Werner Schirmer. When the courses crumbled in the afternoon after bad guidelines from the USA, only a small plus remained.
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Allianz boss Bäte sees his long-term flourishing industry at a turning point. “In the future there will be value creators and value destroyers”, is his credo. It goes without saying that his house should belong to the first group.
Growth, improved margins and greater capital efficiency should contribute to this. In the next three years, earnings per share are expected to increase in a range of five to seven percent per year, the return on equity is expected to be at least 13 percent and the solvency ratio – a measure of stability in times of crisis – at least 180 percent.
US life insurance solution
Many industry representatives have had difficulties for years, especially when it comes to the efficient use of capital. In life insurance in particular, high guarantee promises squeeze out the past, while in capital investments it has been a long time since hardly any interest could be earned. On Friday, Allianz presented a concept that had already emerged in the past few weeks.
For its US life insurance subsidiary, the group has found a solution for a portfolio of old contracts worth around 30 billion euros. This is not a sale, instead the reinsurer Resolution Life and Group companies of Sixth Street are hedging the portfolios, so that Allianz capital of 3.6 billion euros will be released.
Allianz already worked with Resolution Re at the end of September on a similar model on the restructuring of Swiss life insurance contracts. Further transactions are to follow, announced Bäte: “We are transforming life insurance into a ‘capital light’ market.”
Analysts praised the direct consequences for the Group’s capital resources. Will Hardcastle from the major Swiss bank UBS even spoke of a “solvency boost”, as the solvency ratio of the group rose to 216 percent at the end of September from 207 percent previously. “That increases the flexibility of capital,” said Hardcastle.
Bätes open commitment to life insurance is untypical for the industry. The potential in property insurance has been propagated there for years, but life insurance is seen in many places as a mixture of legacy issues and limited future opportunities. Allianz, on the other hand, sees its role at the forefront of change with a strategy of released capital in old contracts and further restructuring of new business into products that are efficient on the capital market.
Remodeling at Pimco
The in-house asset management around the two subsidiaries Pimco and AGI will play a key role in this. The smallest of the three Allianz units has turned into a profit driver in recent years. After strong inflows, both houses are now managing the record amount of more than 2.5 trillion euros.
In the future, Pimco, which accounts for around 80 percent of Allianz’s total asset management, will generate around a quarter of sales through alternative investments such as infrastructure or private equity. Gone are the days when Pimco was best known as a specialist in fixed income securities. Their share in the portfolio is already just over 40 percent.
On the earnings side, the group aims to achieve a total of twelve billion euros by the year 2024 through the measures introduced. If the 3.6 billion euros in capital released from the US life insurance portfolio were added to this, a sum of more than 15 billion euros would be available for internal transactions, share buybacks, dividends or possibly a large purchase.
Dekabank fund manager Speich is convinced: “The flexible handling of excess capital is gratifying, especially when it comes to additional distributions in the form of special dividends or share buybacks that were previously impossible.”
The dividend should rise continuously
Allianz has been one of the most avid dividend payers in the country for years. The dividend per share is now expected to grow by at least five percent every year. As before, the regular payout ratio should be 50 percent of profit, but adjusted for extraordinary and volatile elements.
“The adjusted dividend policy should probably signal the trust of the management in the attainability of the financial targets as well as the stability of the business model”, says DZ Bank analyst Thorsten Wenzel. But it seems to him “economically little sense to create the opposite illusion by increasing the dividend in a bad financial year”.
Financial experts reacted disappointed that there were no indications of possible burdens from the failed hedge fund strategies of the subsidiary AGI in the USA in the final round of analysts with the management board. It is estimated that payments of up to six billion euros could be made to the group.
CFO Giulio Terzariol did not want to answer questions about it. On previous occasions, he had referred to the confidentiality that the US judiciary has imposed on the parties involved in this case.
It has long been known that the lawyers on both sides have been negotiating for months in order to reach an out-of-court settlement if possible. However, a solution has to be found with around 25 plaintiffs, which makes the negotiations more difficult. As long as there is a lack of transparency on this issue, it will put a strain on the share price development, says fund manager Speich.
More: https://www.handelsblatt.com/finanzen/banken-versicherungen/versicherer/allianz-versicherer-mit-hoeheren-gewinnen-und-neuer-strategie-fuer-investoren-gibt-es-allerdings-eine-enttaeuschung-/27847846 .html