Leadership Transition

Allianz, Fighting Earnings Slowdown, Telegraphs Exit of CEO Dieckmann

Michael Diekmann
It's been difficult to find a successor for Michael Diekmann, chief executive of Allianz.
  • Why it matters

    Why it matters

    At Allianz, the future of its longtime CEO, Michael Diekmann, and six other board members remains open amid a slowdown in earnings at Germany’s largest insurer.

  • Facts

    Facts

    • Allianz reported an increase in first-half income, but business remained weak in the United States.
    • Low global interest rates have made it difficult for insurers by paring their returns on invested premiums.
    • Mr. Diekmann’s contract, and those of six other Allianz board members, are up for renewal in December.
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    Audio

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Michael Diekmann, the chief executive at Allianz, has been running Germany’s largest insurer since 2003.  His current contract is up for renewal at the end of this year and there are two possible successors. Some observers say neither is ready to take over yet.

On Friday, Allianz’ first-half financial results were well received by the market, but some analysts and investors were less happy about the firm’s refusal to confirm whether Mr. Diekmann, its longtime chief executive, would remain at the helm.

The insurer last week offered no details about a potential succession at the top.

In remarks to analysts, Mr. Diekmann said the Allianz supervisory board would decide on the leadership question in October. German businesses have non-executive supervisory boards which hire and fire chief executives and confirm strategic decisions made by the management board.

But investors preferred well-telegraphed and publicized transitions in top management. Allianz’ silence on Mr. Diekmann’s future has come under scrutiny.

“The supervisory board is ducking out of its responsibilities by postponing the decision,” said Manuel René Thiesen, a professor of corporate governance based in Munich. “The supervisory board is just signing things off, and has power only on paper.”

Mr. Thiesen described the delay as unprofessional and called it a slap in the face both for German corporation law and good corporate governance.

Allianz sales rose 7.8 percent in the first half year compared with the same period last year. For the second quarter, the insurer’s revenue rose 10 percent to €29.5 billion ($39.4 billion) compared to the same period in 2013. Allianz’ net income grew by 10.9 percent to €1.9 billion over the same period in 2013.

Operating profit grew by 17.1 percent to €2,771 million, mainly due to growth of its life and health insurance business. Allianz property and casualty business also benefitted from fewer payments for natural catastrophes during the period.

Allianz suffered lower operating revenues in its Asset Management department, which fell from €209 million to €161 million, and operating profit fell 16 percent.

Pimco, Allianz’s U.S. fund subsidiary, remained a source of concern as investors have been withdrawing from the flagship Total Return fund. But Pimco continues to make profits, although these are sinking, and Mr. Diekmann reaffirmed his support for the unit.

 

Allianz’ German business was its strongest in the last quarter, with weakness in the United States, Russia and Brazil. The insurer is working to boost profits.

Looking forward, the insurer expects challenges in the future from lower investment yields, increasing competition and growing regulation. But it confirmed that it was likely to achieve operating profits of between €9.5 billion and €10.5 billion for the full year, within its target.

Analysts responded positively.

“Allianz produced very strong results with operating profit 7% ahead of consensus. They contained some one-offs but have nevertheless given us reason to increase our already above-consensus forecasts,” Peter Eliot, an analyst at Berenberg Bank, wrote in a note to investors. “Earnings from the life division, the main driver of the beat, remain underestimated in our view.”

Allianz’ Germany business was the strongest, with weaker areas in the U.S., Russia and Brazil. The insurance firm committed to improve its profitability, Mr. Eliot wrote.

“Its second-quarter result appears largely sustainable and Allianz has added significant additional volume at excellent margins. Headwinds in non-life should be at least partially one-off.”

 

Allianz
Allianz building in Munich. Source: DPA.

 

Allianz confirmed its earnings outlook for the year, but investors remained concerned about whether Mr. Diekmann’s contract will be renewed when it runs out in December. The contracts of six other board members also end in December.

Mr. Diekmann has had a successful run, but the company is struggling to boost profitability. Since taking over at Allianz, he has cut thousands of jobs and shifted Allianz’ focus toward wealthier clients. He stemmed a slide in earnings and turned around Allianz once before.

Looking forward, he said he was up for another challenge, but made it clear his future was not his to determine.

“Of course I’d like to continue on the job but I don’t want to prejudice anything before a decision is made,” Mr. Diekmann said.

“My understanding is that he’s going to stay in post for another two years to give the two successors a chance to prove themselves,” Mr. Eliot said.

The two managers frequently mentioned who may succeed Mr. Diekmann are Markus Riess, who heads Allianz’ Germany business, and Oliver Bäte, head of the Italian business. But both lack experience, some observers say, for the top post.

Mr. Eliot, the analyst, said he was reluctant to say which executive had a better chance of succeeding Mr. Diekmann.

“The German head has been less in the spotlight for the analyst community,” Mr. Eliot said.

The Germany business is the biggest contributor to the Allianz group and Mr. Riess has led this area successfully for four years.

Mr. Bäte is better known as he has been a board member since 2008 for Allianz’ business in southern and western Europe. Previously, he was the group’s chief financial officer and had been seen as the likely successor by some analysts.

“It would make sense for him to get a bit more experience and for Mr. Diekmann to stay in position for the next few years,” said a fund manager who declined to be named. “Of course, it isn’t good to have to wait so long for a decision to be made.

But Allianz is resisting any pressure.” However he did not think it likely that there will be a change of chief executive this year. “It wouldn’t be the right time,” the fund manager said.

Other analysts expected continuity – for the present.

“We think it make sense if Mr. Diekmann stays on as chief executive for another one or two years so he can ensure the business is in good shape and can hand it over without any legacy issues,” said Ingo Speich, a fund manager at Union Investment.

 

 

 

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