On an exceptionally sunny, mid-March afternoon, Dr. Paul Achleitner draws the shades draped over the back window of his corner office, overlooking Munich’s stately English Gardens. “The only thing I want you to be blinded by is me,” the Allianz finance manager says dryly.
Achleitner, a former Goldman Sachs partner who joined the German insurance and asset management giant as a member of the management board 12 years ago is, indeed, illuminated. He has a twinkle in his eye and a wears a mischievous smile, clearly pleased by the company’s stellar 2010 performance. Revenues at Munich-based Allianz peaked at €106.5 billion, up 9.3 percent from the year prior; net income rose 12 percent, jumping to €5.2 billion; and shareholders’ equity grew 10.9 percent to €44.5 billion, prompting a proposed dividend of €4.5 per-share – and a first place finance buy-side award for the company's official CFO, Oliver Bäte, in Institutional Investor's All Europe Exeuctive Team rankings.
Achleitner attributes the profitable results to a stable business model that takes a long-view of markets. “We have had a consistent AA stable outlook [by credit rating agencies Moody’s and A.M. Best since 2003, and by S&P since 2007] and this was not changed despite the volatility that we had in the last few years.”
According to Achleitner, when Michael Deikmann took over as CEO seven years ago he transformed a confederation of national insurance companies and banks into a unified, “global actor” focused on insurance and investments. Since then, Allianz has launched a concerted campaign to industrialize the business, particularly in the Eurozone. This means, in essence, having the “ability to exact economies of scale” in the insurance industry, Achleitner explains. He adds, “This is something that has not been delivered by the industry in the past – just adding revenue doesn’t provide scale.”
To successfully industrialize the business, Allianz has to have a sense of what clients really think of its services. The group uses a “net promoter score,” a survey on a scale of 1-10, with ten being the highest, that asks customers, ‘Would you recommend Allianz to your best friends?’ The management then compiles a list of the responses in the 1-6 range and those in the 9-10 range – “those that answer 7-8 are just being polite,” Achleitner says – and looks at the net range of responses in order to take a measurement of customer satisfaction.
Allianz has been able to scale its business, even in light of the financial crisis, by sticking to a conservative investment strategy when it comes to its clients’ money. Achleitner emphasizes repeatedly that a profitable insurance company like Allianz has to invest with an aim toward long-term growth, rather than short-term gain. “People give you money and expect to have it back sometime in the future – maybe – so its a question of what do you do with that investment?” Achleitner says. He adds, “We’ve never lost sight that excessive returns mean excessive risk.”
However, Achleitner admits that it has been much easier to maintain this philosophy since the company divested itself of Dresdner Bank in 2008, originally acquired in 2000. For Allianz, Achleitner explains, “having Dresdner on board, or not, was a bigger issue than the financial crisis” for the company’s survival. “The decision culture is different if you have a short-term trading culture in house, which most banks require,” he says. “To marry the two in a managerial culture is challenging and difficult.”
Achleitner readily admits that acquiring Dresdner bank was not one of the company’s best strategic decisions. “I find it difficult to have an excessive pride in the eloquence of a transaction, if the underlying target actually turns out to not be a good transaction in the first place,” he ponders aloud, before summing up: “We as a management team are not exactly proud of the Dresdner Bank episode.”
But he is unabashedly proud that all of the company’s divisions – property and casualty insurance, life and health insurance, and asset management – improved their operating profits last year. Or, as Achleitner says, “All cylinders were firing.”
In the property and casualty insurance division, the operating profit grew 5.9 percent to €4.3 billion. Though, the overall growth of premiums written was just over 3 percent, the lowest rate of growth out of all of the company’s divisions.
Achleitner argues that a successful property and casualty business is inherently about low-growth--and, most importantly, a disciplined focus on the bottom line, not the top. “It’s relatively easy to show growth in this sector, but we will be writing risk that will cost us three years from now,” he says. Nonetheless, he admits, “We would like to see a more profitable property and casualty business.”
Meanwhile, the life and health insurance division had an unambiguously strong year. Operating profit rose 7.4 percent to €2.9 billion, while growth in premiums reached 12.5 percent.
The asset management business – thanks in no small part to its profitable subsidiary, Newport Beach, California-based PIMCO – demonstrated the most significant growth of all divisions, with a 47 percent increase in its operating profit to €2.1 billion. The business had a net inflow of €133 billion last year, an organic rise of 26 percent, bringing total assets under management to €1.5 billion.
For Achleitner, these numbers, coupled with the company’s long-term approach, will enable Allianz to successfully navigate the “new normal” that is emerging in the world of economics and finance.
As Achleitner puts it, the “world BC,” or before the crisis, was about excessive risk taking, while the “world AD,” or after de-leveraging, will be defined by companies paying off exorbitant debt. De-leveraging will play a large role in shaping the “new normal,” with the greatest consequence being that capital will become increasingly scarce and expensive.
“In that new world there are going to be a number of things that matter, including a long-term oriented business model that can sustain, despite short-term volatility.”
