Bloomberg News

Allianz ‘on Plan’ With German Non-Life Unit Turnaround

May 02, 2012

Allianz SE (ALV)’s drive to more than double operating profit at its German property and casualty unit in the next three years is “on plan,” the head of the division said.

“We have turned the corner in 2011 and are sticking to the targets we have set for our German non-life business,” Markus Riess, who has led the unit since July 2010, said in an interview in Munich. The division plans to increase the number of insurance contracts it sells per customer while lowering costs and improving claims management, he said.

Allianz set a goal to raise premiums at the German property and casualty division, its biggest non-life unit by premium income, by 500 million euros ($661 million) to 9.5 billion euros by 2014. It plans to trim costs to 26 percent of premium income from 27.8 percent at the end of last year to help improve the unit’s combined ratio, or claims and costs as a proportion of premiums, to 95 percent from 102.9 percent in 2011.

The initiatives, which include the reduction of about 400 administrative positions over the next three years, have the potential to help improve the unit’s operating profit by more than 500 million euros, Allianz said in a presentation in February. The unit reported operating profit of 482 million euros in 2011, compared with 617 million euros in 2010.

“We will improve our sales approach with a more modular product offering to help lift the number of contracts per customer from 2.3 at the moment,” said Riess, 46. The unit applied the strategy to motor insurance last year and will broaden it to other non-life products such as personal liability and homeowners’ insurance, according to Riess.

Auto Insurance

Higher prices in some areas are helping Allianz’s efforts. German auto insurance rates rose last year for the first time since 2004, ending a price war that steered the 20 billion-euro market into underwriting losses. Allianz said in February it secured a “high single-digit price increase” in German motor insurance in 2011, which is expected to boost earnings starting this year.

“The real turnaround has to come from our operating business,” said Riess. “We can’t simply rely on higher prices or a rise of interest rates.”

Riess worked from 1993 to 1996 for McKinsey & Co. and was a management board member at Allianz Global Investors, the Munich- based insurer’s asset management division, for 10 years until 2007. He then joined the German insurance unit’s management board with responsibility for sales.

“We aim at returning our German motor business to an underwriting profit,” he said.

‘Quick Solution’

Auto insurance premiums fell 1.2 percent to 3.1 billion euros at the division last year, accounting for 34 percent of the total at the German non-life business. Riess plans to regain profitability in the segment by expanding cooperation with car manufacturers and selling more individual coverage that better fits a customer’s needs. As part of an effort to boost services, Allianz has added 400 new positions in claims management.

“Speed is key in customer service,” Riess said. “That’s why we will put the focus on improving the quality of our telephone hotlines. A customer that gets a quick solution is much more satisfied than a customer who had to wait a long time to get a generous claims payment.”

The company also plans to sell more insurance through independent brokers, Riess said.

Allianz, led by Chief Executive Officer Michael Diekmann, is targeting operating profit of 7.7 billion euros to 8.7 billion euros this year, compared with 7.87 billion euros in 2011. The company’s shares advanced 14 percent so far this year, compared with a 9.5 percent gain in the 28-member Bloomberg Europe 500 Insurance Index.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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