Korean Divestment

Securing a Robust Allianz

Allianz CEO Oliver Baete source picture alliance Sven Simon
Allianz chief Oliver Bäte is reorganizing the insurance group.
  • Why it matters

    Why it matters

    The sale of Allianz’s loss-making South-Korean business could help to improve the insurer’s results in the long run.

  • Facts

    Facts

    • Allianz has agreed to sell its South-Korean insurance business for about $3 million to Chinese rival Anbang.
    • Allianz boss Oliver Bäte has told investors that the insurer had been too patient in the past with under-performing businesses.
    • Mr. Bäte promised austerity and growth, but said the insurer would not consider job cuts.
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    Audio

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Oliver Bäte is serious about his announcement to clean house at Germany’s largest insurance firm Allianz and get rid of loss makers.

The contracts to sell Allianz Life Insurance Korea and Allianz Global Investors Korea were signed in at the company’s headquarters in Munich on Tuesday. The buyer is Chinese insurance group Anbang, which is paying more than $3 million, or €2.6 million, for the loss-making company.

The price tag is relatively low as the South-Korean business was a burden on Allianz, and there are even additional costs involved in selling the subsidiary. With the sale, the company is posting a loss of up to a few hundred million euros, an Allianz spokesman told the Reuters news agency.

Still, the company’s departure from South Korea is unlikely to be difficult for Mr. Bäte, who has headed Allianz for more than a year. In 2016, the South Korean business posted an operating loss of €244 million.

Last November, Mr. Bäte told a meeting of investors that Allianz had been "far too patient" with subsidiaries that were not producing good results.

The insurer, which Allianz acquired in 1999, has costly life insurance policies on its books, some with a guaranteed 7-percent return – a nightmare for any insurance manager in the current low interest-rate environment. This is why Mr. Bäte decided to cut his losses.

Last November, he told a meeting of investors that in the past Allianz had been “far too patient” with subsidiaries that were not producing good results, and announced: “We are going to change that.” South Korea is the first step in this new approach.

Allianz is also beating a retreat from other markets. According to Reuters, a portion of Allianz’s Italian life insurance business is for sale, affecting a policy volume of €4.5 billion.

In Italy, Allianz is also feeling the brunt of high promised returns it had made in the past. Under the new Solvency II equity capital guidelines, the company must establish higher capital reserves in return. Unlike the two companies from South Korea, Allianz could earn about €200 million from the sale of the Italian businesses, said the insiders.

The buyer of the South Korean companies is a relative unknown in Germany, but according to Anbang, it is one of China’s largest insurers, with more than 30,000 employees and 30 million customers.

After launching its business in 2004 with the sale of automobile insurance, Anbang has expanded its operations through a large number of acquisitions. In 2014, the Chinese insurer acquired Belgian company Fidea, and this year it acquired Dutch insurer Vivat and an American insurance company. In South Korea, Anbang already owns Tongyang Life Insurance.

Anbang attracted international attention when it acquired the prestigious Waldorf Astoria Hotel in New York last year. Until last week, the company was also embroiled in a bidding war with the Marriott hotel chain over Starwood Hotels & Resort, but eventually withdrew its bid.

 

WTB Allianz 2014_baete

 

Kerstin Leitel is an editor at Handelsblatt who covers the insurance industry. To contact the author: leitel@handelslblatt.com

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