Reuters.business.insights.the.top.10.global.insura nce.companies.sept.2004.ebook-tlfebook

Reuters.business.insights.the.top.10.global.insura nce.companies.sept.2004.ebook-tlfebook

Barbara Kubis-Labiak

Barbara has a BA (Hons) in Business and Management and is currently at the end of her

MSc in International Finance degree Barbara started her career working as an intern for

the European Commission in Brussels, and then in 1999 she joined Datamonitor

Financial Services department as an analyst Barbara's work at Datamonitor involved

various projects and reports, including the FinTab project, where she helped to develop

an online data resource covering the insurance, banking, investments and payment cards

sectors Barbara also authored a number of reports: Retirement Provision in Germany

2001-2008, Retirement Provision in Germany 2002, European Mutual Funds 2001, UK

Wealth Management, Distribution of life insurance and pensions in Europe 2002 and

Central and Eastern European Life and Pensions 2002, as well as consultancy projects,

for example Motor insurance distribution in central Europe, Competitors in occupational

pensions in Germany, Bausparkassen in Germany and many others

Copyright © 2004 Business Insights Ltd

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London N17 0HW www.mba-group.com

Table of Contents

The Top 10 Global Insurance Companies

Increasing profitability, market share and competitive edge

The global insurance market overview 10

The top 10 global insurers: company analysis 11

Introducing the top 10 global insurance companies 16

Introduction 20

Life and non-life insurance markets worldwide 21

European life bancassurance overview 27

Opportunities in European bancassurance 30

Company activity snapshot 49

Company activity snapshot 68

Company activity snapshot 76

Company activity snapshot 86

Company activity snapshot 105

Company activity snapshot 113

Figure 2.2: Stock market indices in major stock markets in Europe, 2000—2004 21

Figure 2.3: Total life insurance premium volume in the top five European countries, 2000—2003

Figure 8.9: SWOT analysis of Nippon Life Insurance Company 83

Figure 9.10: SWOT analysis of State Farm Insurance 93

Figure 12.13: SWOT analysis of Dai-Ichi 118

List of Tables

Table 1.1: Top 10 global insurance companies, by premium income in 2000—2003 17

Table 2.2: Total premium insurance volume by country and region, 2000—2003 23

Table 2.3: Life insurance premium volumes by country and region, 2000—2003 25

Table 2.4: Non-life insurance premium volumes by country and region, 2000—2003 26

Table 2.5: Distribution of life assurance by distribution channel, 2002 28

Executive Summary

Executive Summary

The global insurance market overview

2003 saw some signs of recovery after two years of worldwide recession and growth

rates are gradually picking up

The world insurance premium volumes, after a drop from $2,444,903 in 2000 to

$2,408,252 in 2001, are now growing at a steady pace, and reached $2,940,670 in

2003, experiencing a compound annual growth rate of 6.3% in the period 2000 and

2003

Figure 1.1: Total life and non-life premium volume in the top five European

markets, 2000—2003

0 50,000

France Germany

Life insurance premiums have experienced a very slow growth after the decrease in

premium income in 2001 In many countries 2003 saw a further decrease in premium

income, for example in the UK

The compound annual growth rate for non-life insurance in Europe between 2000

and 2003 totalled 15.6%, compared with only 5.1% for life insurance during the

same period Only one country, Germany, experienced a negative growth during this

period

Bancassurance has been particularly successful in France, Italy and Spain Banks in

these countries enjoy more than 50% of the distribution of life assurance products

In Italy, for example, bancassurance accounted for 56% of the distribution of life

assurance products, with five of the top 10 life assurance competitors in the market

owned by Italian banks

Depolarisation would encourage a competitive advantage for banks holding in the

UK This would allow non-independent institutions to offer life and pensions

products from more than one provider, coupled with the introduction of simpler

products

The top 10 global insurers: company analysis

Nippon Life, based in Osaka, Japan, is both the largest provider of life insurance in

Japan and one of the world's largest insurance companies in terms of total assets and

policies in force The company's core business is life insurance Products and

services within this area are made available to both individual and corporate/group

clients The company also offers non-life products and such cover as medical

treatment and long-term care, as well as asset management/asset formation products

For the fiscal year ended December 2003, ING’s company's revenues (including

both insurance and banking operations) were €64,913 million, compared to

€70,650from the previous year Operating net profit amounted to €4,053 million, an

18.1% increase compared with 2002 Banking profits were up by 72.6%, which

compensated for the somewhat weaker performance of insurance activities

Allianz is hoping its latest 'New Dresdner' program will see the bank earn its cost of

capital again in 2005.Consistent bad news from the Dresdner investment banking

arm has blemished the organisation's reputation Harsh cost cutting tactics have been

operating for two years now and Dresdner still has not managed to return to

profitability

State Farm Insurance is a personal lines property/casualty company that provides

auto insurance, non-medical health, life, and homeowners insurance The company

has various subsidiaries across the United States that sell all types of insurance It

also operates State Farm Bank, which provides additional financial services State

Farm Insurance is headquartered in Bloomington, Illinois

Axa capitalises on its core strengths: over 50 million clients worldwide; a

44,000-strong captive distribution force; a global brand; unique product skills in areas such

as insurance underwriting, long-term investments, and financial advice, all on a scale

that enables Axa to leverage best practices and operations platforms across the

group

Assicurazioni Generali has one of the strongest balance sheets in the sector and

boasts €1.7 billion in excess capital The low level of equity exposure, limited

exposure to asset management and commercial banking and no direct exposure to

the United States or Japan gives it a very stable outlook in the current environment,

where there is a clear correlation between capital adequacy and share price

performance

While half of its business comes from the UK, it has presence in France, the

Netherlands, Spain, Italy, Ireland, Canada and Australia Aviva operates through its

subsidiaries under names such as Aviva, CGNU, Norwich Union, CGU, Morley

Fund Management and Delta Lloyd It has 30 million customers

For the fiscal year ended March 2004, the Dai-ichi Mutual Life Insurance Company

achieved revenues that totalled ¥5,090.4 billion ($46,990 million) a decrease of 4%

against the previous years revenues that were ¥5,255.9 billion ($47,565 billion)

Reduced insurance premiums and lower revenues from group pensions were some of

the key reasons behind the fall in overall revenues

Zurich benefits from the considerable scale of its operations It maintains a presence

in 60 countries globally, and a strong focus on the key markets of the UK, U.S and

Switzerland, with expanding operations in continental Europe It is the UK's third

largest household insurer in terms of gross earned premiums It also has 2,000

financial planning businesses in the UK, through the Zurich Advice Network This is

also one of the country's largest mortgage introducers In total it has around 38

million customers

For fiscal 2003 AIG's revenues were $81.3 billion, an increase of 20.5% on the

previous year's results of $67.4 billion The company achieved operating revenues

that totalled $15,805 million, a 47.5% increase on the previous year’s total of

$10,712 million

Chapter 1

Introduction

Chapter 1 Introduction

Report structure

Global insurance overview

This chapter provides a general overview of the trends in the global insurance industry

and presents data on global insurance for the period 2000—2003, based on the Swiss Re

sigma economic research The sigma publication series provides comprehensive

information on the international insurance markets and in-depth analyses of economic

trends and strategic issues in insurance, reinsurance and financial services, covering life

and non-life business It is considered to be one of the most reliable and comprehensive

sources of information about insurance industry This report uses the World Insurance

Series published regularly by Swiss Re sigma research with independent expert analysis

The second half of the chapter addresses an important issue within the insurance

industry, namely bancassurance with statistics on the distribution of life insurance in

Europe

Introducing the top 10 global insurance companies

The chapters that follow have been written in a similar format, providing comprehensive

information on each of the top 10 global insurers Each chapter includes an overview of

the company’s main activities, its history, comprehensive SWOT analysis and analysis of

the current company status The companies profiled in this report are:

1 Allianz AG

2 Axa

3 American International Group, Inc

4 Assicurazioni Generali S.p.A

5 ING Groep N.V

6 Nippon Life Insurance Company

7 State Farm Insurance Companies

8 Aviva Plc

9 Zurich Financial Services

10 The Dai-ichi Mutual Life Insurance Company

These companies are considered to be the largest and most important insurers globally

The main purpose for presenting these companies in this report is to show the examples

of best practice among insurers, analysing the reasons behind the growth of these

businesses, and indicating any potential problems they might be facing In this way, these

profiles serve as examples for other insurers of what strategies to implement in order to

expand their businesses and achieve higher profitability One of the important

characteristics of most of these profiles (as shown in the table below) is the decrease in

revenues in 2002 to 2003 due to the global recession This aspect of insurance business

is analysed within the profiles, in most cases indicating that there are signs of recovery

among global insurers

The table is in order of 2003 revenues, with Allianz taking the number one position with

3 American International Group, Inc 67,400 81,300

4 Assicurazioni Generali S.p.A 77,412 79,881

6 Nippon Life Insurance Company 72,224 62,014

7 State Farm Insurance Companies 49,699 56,100

9 Zurich Financial Services 41,423 48,919

10 The Dai-ichi Mutual Life Insurance

Company (year end in March) 47,565 46,990

Source: Annual report analysis Business Insights

Chapter 2

Global Insurance Overview

Chapter 2 Global Insurance Overview

Summary

The year 2003 has shown some signs of recovery after two years of worldwide

recession and growth rates are gradually picking up

The world insurance premium volumes, after a drop from $2,444,903 in 2000 to

$2,408,252 in 2001, are now growing at a steady pace, and reached $2,940,670 in

2003, experiencing a compound annual growth rate of 6.3% in the period 2000

and 2003

Life insurance premiums have experienced very slow growth after the decrease in

premium income in 2001 In many cases 2003 saw a further decrease in premium

income, for example in the UK

The compound annual growth rate for non-life insurance in Europe between 2000

and 2003 totalled 15.6%, compared with only 5.1% for life insurance during the

same period Only one country, Germany, experienced a negative growth during

this period

Bancassurance has been particularly successful in France, Italy and Spain Banks in

these countries enjoy more than 50% of the distribution of life assurance products

In Italy, for example, bancassurance accounted for 56% of the distribution of life

assurance products, with five of the top 10 life assurance competitors in the

market owned by Italian banks

Depolarisation in the UK that will allow non-independent institutions to offer life

and pensions products of more than ones provider, coupled with the introduction

of more and more simple products will offer a competitive advantage to banks

Introduction

Considering Figure 2.2, it is clear that between 2000 and 2002 there was a rapid decline

in stock market growth worldwide Such falls of course meant that investors saw their

assets decrease in value For example, the German index, the DAX, suffered the most,

falling by 58.4% in the period 1999—2002 and the average fall across the five countries’

indices was 44.9% The Spanish General Index comparatively performed the best, falling

37.1% in the period 1999—2002

2003, however, showed some signs of recovery, something that all investors have been

looking forward to After two years of worldwide recession growth rates are gradually

picking up

Figure 2.2: Stock market indices in major stock markets in Europe, 2000—

2004

Source: Euroland stockmarket indices Business Insights

Life and non-life insurance markets worldwide

Definitions

The most important terms used in this chapter are as follows:

Direct insurance: insurance contract between an individual (or a company) and

an insurer;

total insurance: direct insurance premiums plus reinsurance accepted;

gross insurance: insurance premiums before ceding any portion of them (and

net insurance: insurance premiums after ceding some risk to reinsurers;

written premiums: premium income allocated to the current accounting year,

regardless of when the risk (or the contract) runs to, or whether the risk

continues into the next accounting year;

earned premiums: the portion of premium income that corresponds to the

current accounting year Premium income is spread over the duration of the

contract

This chapter also distinguishes between life insurance and non-life insurance

Life insurance: risk insurance intended as protection against the financial

consequences of the death of the insured person which takes the form of

payment of a previously agreed lump sum or pension to a beneficiary, if the

insured person dies during the term of insurance In the case of pure life

insurance, without any endowment insurance component, no payments are due if

the insured person survives the term of insurancei

Non-life insurance: covers all other types of insurance, including motor

insurance, property and casualty, liability insurance, credit insurance, health and

accident insurance (although some countries classify health and accident

insurance as ‘life insurance’), and other

The world insurance premiums, after a drop from $2,444,903 in 2000 to $2,408,252 in

2001, are now growing at a steady pace, and have reached $2,940,670 in 2003,

experiencing a compound annual growth rate of 6.3% in the period 2000 and 2003 It is

i

Swisslife definition

evident that the declines in stock markets worldwide had a direct impact on world

insurance premiums, resulting in either a decrease in premiums or a sluggish growth

Table 2.2: Total premium insurance volume by country and region, 2000—

Note: The values in Euro for UK, Sweden, Denmark and Norway are converted from local

currency into Euro, based on end of year 2003 exchange rate

Source: Swiss Re, sigma No 3/2004 (year 2000 from sigma No 6/2002) Business Insights

Figure 2.3: Total life insurance premium volume in the top five European

countries, 2000—2003

0 50,000

France Germany

Source: Swiss Re, sigma No 3/2004 Business Insights

Life insurance premiums have experienced a very slow growth after the decrease in

premium income in 2001 In many cases the year 2003 saw a further decrease in

premium income, for example, in the UK This trend is not only because of the recession

of 2001, but also due to the persistent low interest rates resulting in life insurers offering

lower returns Such trends have been observed in the traditional life insurance sector, as

well as in unit-linked insurance According to Swiss Re Economic Research &

Consulting data, unit linked insurance experienced negative real growth rate between

2001 and 2003 in France and Spain, and the UK and Italy saw a very slight increase in

2003

Table 2.3: Life insurance premium volumes by country and region, 2000—

Note: The values in Euro for UK, Sweden, Denmark and Norway are converted from local

currency into Euro, based on end of year 2003 exchange rate

Source: Swiss Re, sigma No 3/2004 (year 2000 from sigma No 6/2002) Business Insights

The above table analyses the life insurance premium volumes worldwide, demonstrating

that some countries recorded negative compound annual growth rate in the period

2000—2003, including the UK, Netherlands, Spain, Sweden, Finland and Ireland The

highest growth rate was recorded in Portugal, with 19.4% compounded annually

between 2000 and 2003, followed by Italy with 16.7% and 13.9% for Norway

Worldwide, Europe achieved a better growth than the rest of the world, with 5.1%

compounded annually between 2000 and 2003, compared with 3.3% for the United

States and 3.3% worldwide

The non-life insurance sector experienced a much stronger growth than the life

Table 2.4: Non-life insurance premium volumes by country and region,

Note: The values in Euro for UK, Sweden, Denmark and Norway are converted from local

currency into Euro, based on end of year exchange rate

Source: Swiss Re, sigma No 3/2004 (year 2000 from sigma No 6/2002) Business Insights

Table 2.3 shows a different story to Table 2.4 The CAGR for non-life insurance in

Europe between 2000 and 2003 totalled 15.6%, compared with only 5.1% for life

insurance during the same period Only one country, Germany, experienced negative

growth

According to Swiss Re Economic Research & Consulting, the growth in non-life

insurance was mainly driven by renewed premium rate increases The strongest growing

sector was the third party liability, due to the higher claims payouts and subsequent

increases in the amount of premiums charged

European life bancassurance overview

Life bancassurance is taken to mean several things:

Distribution partnerships, whereby a bank agrees to sell the products of a life

assurance provider through its branches, or;

bank-owned life assurers, where the bank distributes the life assurance products of

its life subsidiary;

or life assurer owned banks, where the parent life assurer distributes its products

through its banking arm

The distribution of life assurance products through the banking channel has been a

successful model in the European markets studied (including France, Germany, Italy,

Spain and the UK), with examples of each of the above models present in each country

For example, Lloyds TSB in the UK owns Scottish Widows, the life and pensions

provider, distributing its products through the Lloyds TSB branches In Germany,

Allianz owns the German bank Dresdner and distributes its products through the bank’s

branches, while in Italy, Banca Unicredito has a partnership with the Italian life company

RAS to distribute its products Caja Madrid owns Caja Madrid Seguros Generales and

also has a cross-shareholding agreement with Mapfre resulting in Mapfre Vida now

being part of Caja Madrid Seguros Generales whilst Caja Madrid falls under Banco

Mapfre

Whilst life bancassurance has been successful in France, Germany, Italy, Spain and the

UK, the penetration of the bancassurance channel in these countries is not uniform

Across the five countries, the market share of life assurance distribution owned by the

bancassurance channel ranges in size from 18% to 77%

Table 2.5: Distribution of life assurance by distribution channel, 2002

Banks/ Tied Direct IFAs/ Other Bancassurers Agents salesforce Brokers

Source: Business Insights Business Insights

Bancassurance has been particularly successful in France, Italy and Spain Banks in these

countries enjoy more than 50% of the distribution of life assurance products

In Italy, bancassurance accounted for 56% of the distribution of life assurance products,

with five of the top 10 life assurance competitors in the market owned by Italian banks

In France, bancassurance has been even more successful, with the channel responsible

for 61% of distribution Of the top 10 bancassurance competitors in the French market,

the French banks owned five in 2001

The most successful bancassurance market in Europe by far was Spain, where the banks

have grown over the last decade to dominate the market with 77% market share Prior

to 1992, banks were not allowed to distribute life assurance products By 2002, Spanish

banks owned seven of the top 10 life assurance competitors

Whilst bancassurance has been very successful in the Latin countries, German and UK

investors have resisted buying their life assurance products through bank branches

Bancassurance in Germany has experienced the least success, sharing only 19% of the

life assurance distribution market Of the top 10 life competitors, the German banks

owned two in 2001

The UK market is slightly more complex due to the dominance of the IFA channel in the

distribution of retail life, pensions and investment products Distribution figures show

that banks have cornered only 17.7% of the life assurance distribution market However,

this does not mean that the banks have not taken an interest in life assurance; four of the

top 10 competitors in the life assurance market are bank-owned Lloyds TSB for

example, distributes Scottish Widows life assurance products through its branches, but

Scottish Widows also distributes its products through IFAs, the preferred channel for

UK investors

Unit linked policies

The mainstay of life bancassurance - unit linked policies - have suffered at the hands of

world stockmarkets Unit linked products such as endowment policies, which have two

components - savings and life assurance - have no minimum income guaranteed, instead

income is directly linked to the underlying fund in which money is invested The

endowment buys specific units in stock market-linked investments, which can go up and

down in value daily Because of the fact that unit-linked policies can take advantage of

the stock market performance, theyhave the potential for greater and faster growth than

other products such as with-profits endowments However, as with any potential for

greater return, there is also an increased risk that the unit-linked policy may produce

much lower returns than a with-profits policy, in cases where the stock markets decline,

as seen in years 2001 and 2003

Before the year 2001 unit-linked insurance policies were showing significant growth all

over Europe, however the events of September 11, 2001, and the global recession that

followed, saw the worldwide stock markets decline significantly, which meant that

returns on unit-linked insurance fell beyond the contributions value (resulting in the

Since the trust in equities has now been shaken, consumers are more reluctant to opt for

products with an element of equity included According to industry experts, since the

memory of past events in finance is rather short, unit-linked products are likely to pick

up again in the future

In the UK for example, sales of unit-linked life products have decreased dramatically in

both endowments (savings) and whole life (protection) New business in endowment

policies and whole life decreased by 31.2% and 20.6% over the period 2000 to 2002

compounded annually

Opportunities in European bancassurance

The results of a survey of industry experts ‘Bancassurance Opportunities in Europe’

(survey of 52 banks and life assurors across the UK, Germany, France, Spain and Italy

conducted in 2003) concerning the issues of bancassurance in Europe indicated that the

outlook for bancassurance was extremely positive with 81.6% of respondents believing

there to be further opportunities With 77% of life assurance premium income coming

via the bancassurance channel, it would seem the opportunities for further dramatic

growth in the Spanish market for life bancassurance are limited However, 90% of

respondents believe that there are still plenty more opportunities in the Spanish market

Respondents believed that these opportunities would open up for banks launching their

own life companies rather than forming partnerships The largest banks such as La Caixa

and BBVA, which hold their own life assurers, were exemplified as the best

bancassurance models in the Spanish market

Going forward, only 10% of respondents regarded the need for independent advice as a

threat to the bancassurance model However, more quality advice offered by the banks

was seen as a key factor in the continued growth of the bancassurance channel Whilst

brokers and IFAs do not dominate, they do hold significant market share to influence the

growth of life bancassurance and banks will need to be able to offer a rival advisory

service

The dynamic changes in the tax regimes across the various countries will increase the

desire for advice With more and more diverse products entering the European markets,

each with its own tax advantages, the need for expert advice will become ever more

important Over recent years there have been changes and proposed changes that have

both boosted and dampened growth in premium income in the life bancassurance arena

In Germany, proposed changes to the tax regulations on life assurance products in 1999

caused a surge in sales of endowment policies, with investors rushing to buy up policies

before taxation was implemented The effects of taxation on investor sentiment should

not be underestimated

Regulations

Depolarisation in the UK that will allow non-independent institutions to offer life and

pensions products of more than ones provider, coupled with the introduction of more

and more simple products will offer a competitive advantage to banks UK banks will be

able to capitalise on their large customer bases and distribution networks to sell more

products and take market share away from the IFAs Simpler products will reduce the

need for investors to pay for advice through IFAs when advice on various products will

be available on the high street through local bank branches

Retirement provision in Germany is undergoing significant changes after the Pension

Reform was passed in May 2001 This created both opportunities and threats for those

concerned, including the government, product providers and consumers The German

government is trying to shift the responsibility for pension provision away from the state

and onto the individual A new set of Riester life assurance and pensions products was

created that can be sold by any institution, this could pave the way for banks to target

existing customers who are concerned about their retirement provision, in turn enabling

banks to capture a larger market share

Chapter 3

Allianz AG

Chapter 3 Allianz AG

Summary

Allianz Group is considered to be Europe’s strongest and most profitable

insurance company Although the year 2002 was very disappointing for Allianz

(not only because of the worldwide recession, but also due to the acquisition of

troubled Dresdner Bank in 2001) the company reversed these figures in 2003

thanks to a positive restructuring program and a number of divestments

Allianz, headquartered in Munich, Germany, is one of the world's leading

insurance and asset management companies, and it generated total group income

of €93,900 million in 2003, up on the previous year from €92,600 million Net

income totalled €1,616 million in 2003, up from a loss of €1,229 million in 2002

At the end of 2002 Allianz reported a loss of more than €1.1 billion, which was

over 150% down on the previous year’s income The share price of the company

slumped from a high in 2001 of €237.99 down to €80.76 by the end of 2002 and

only recovered slightly in 2003 Allianz showed signs of recovery with stronger

results in 2003; however, it is still substantially below the levels of 2001

Overview

Allianz, headquartered in Munich, Germany, is one of the world's leading insurance and

asset management companies The Allianz Group consists of around 700 subsidiaries in

over 70 countries giving the company a global presence

The company's insurance operations comprise the core business of Allianz, including

property and casualty insurance Private and institutional clients are handled primarily

through a nationwide network of full-time and part-time Allianz sales agents while the

industrial risk insurance business is run through brokers and company-connected agents

Two thirds of the company's revenues are generated through its property and casualty

insurance The company is also venturing into alternative risk transfer and other avenues

to expand the company's scope of operations and it established Allianz Risk Transfer

(ART) with headquarters in Zurich to develop financing solutions outside of the

traditional insurance market for service-based, financial and industrial corporations

Private Provision encompasses life and health insurance, with products and services

offered to the company's native Germany and the European market The sector is

designed to provide long-term financial income to clients It also protects clients from

premature consumption of capital The company has engaged in a number of

acquisitions to strengthen its position in the life and health insurance market outside of

Germany These acquisitions included the French company AGF, improving Allianz's

coverage of the French market The company also formed a joint venture between the

President Group in Taiwan and Allianz First Life in South Korea, and also acquired

LifeUSA Allianz's largest health insurance provider is Vereinte Krankenversicherung

AG

Allianz generated total group income of €93,900 million in 2003, up on the previous

year from €92,600 million Net income totalled €1,616 million in 2003, up from a loss of

€1,229 million in 2002

History

Allianz was founded as an insurance provider in Berlin in 1890, and floated on the Berlin

stock exchange five years later

In 1984, it purchased a stake in its Italian subsidiary Riunione Adriatica di Sicurtà and

this was followed two years later with a takeover of Cornhill Insurance The Group

moved into fourth position in the French life insurance market with the purchase of

Assurances Générales de France in 1997 The company boosted its American presence

with the purchases of Fireman's Fund Insurance Company in 1991 and LifeUSA in 1999

LifeUSA has been merged with Allianz Life to exploit the synergies that the acquisition

presented

A key to the company's growth strategy is expansion into emerging markets This began

in 1990 when the company bought the former state insurer of East Germany and then

began to expand into the Eastern European market In 1999, Allianz started to expand

into the Asian market with its first targets being the Chinese and South Korean markets

In order to bolster this division, PIMCO advisors, a U.S based company, was acquired

in 2000 This increased Allianz's exposure to the world's largest capital market In 2000,

Allianz was listed on the New York Stock Exchange In the same year, the company

purchased the U.S asset manager Nicholas-Applegate, San Diego, California In March

2001, Allianz unveiled its most ambitious acquisition to date, Dresdner Bank This deal

creates one of the five biggest asset managers in the world and provides Allianz with

exposure to the banking sector

In May 2004, the company announced that Allianz Capital Partners was to acquire

Hansen Transmissions, a Belgian manufacturer of gearboxes for wind turbines, from

Invensys plc

SWOT analysis

Figure 3.4: SWOT analysis of Allianz

• Strong non - life insurance division

• Expanded product and service

offerings in Europe

• Recovery after losses in 2002

• Lead Dresdner to profitability

• Strengthen asset management position

•Acquisition of Dresdner Bank

•Decreasing profits

•Becoming too diverse

•Competition from foreign insurers

• Strong non - life insurance division

• Expanded product and service

offerings in Europe

• Recovery after losses in 2002

• Lead Dresdner to profitability

• Strengthen asset management position

•Acquisition of Dresdner Bank

•Decreasing profits

•Becoming too diverse

•Competition from foreign insurers

Source: Author analysis Business Insights

Strengths

Strong non-life insurance division: the property and casualty division has been growing

fast and achieved profitability, mainly due to the strong growth in premium income

Expanded product and service offerings in Europe: as part of the measures for

improving service quality for its customers, Allianz Bulgaria is now offering online

services in the areas of life insurance and supplementary voluntary pension insurance

through its company homepage at www.allianz.bg Allianz Bulgaria Life is now the only

insurance company in the country that provides online calculators for estimating

premiums for future guaranteed annuities and the additional interest resulting from

endowment insurance

Recovery after losses in 2002: Allianz Group is considered to be Europe’s strongest and

most profitable insurance company Although the year 2002 was very disappointing for

Allianz (not only because of the worldwide recession, but also due to the acquisition of

troubled Dresdner Bank in 2001) the company reversed these figures in 2003 thanks to

a positive restructuring program and a number of divestments

Weaknesses

Acquisition of Dresdner bank: in 2001 Allianz acquired Dresdner Bank in order to

expand its product offering into banking However, this bancassurance deal was far from

what Allianz had expected Dresdner Bank has been having problems for some time, and

this acquisition meant that instead of increasing profits, Allianz faced significant losses

The insurer had to start with radical cost reductions and Dresdner still has not managed

to return to profitability Dresdner has performed four cost-cutting programs in as many

years, the most recent to further cut employees by 4,700 as well as IT expenditure by

roughly 50% The company is hoping its latest 'New Dresdner' program will see the

bank earn its cost of capital again in 2005

Decreasing profits: at the end of 2002 Allianz reported a loss of more than €1.1 billion,

which was over 150% down on the previous year’s income The share price of the

company slumped from a high in 2001 of €237.99 down to €80.76 by the end of 2002

and only recovered slightly in 2003 Allianz showed signs of recovery with stronger

results in 2003, however, it is still substantially below the levels of 2001

Opportunities

Lead Dresdner to profitability: Allianz estimates that there is a potential in excess of €1

billion if Allianz and Dresdner Bank develop joint products Despite problems with

Dresdner, the extensive distribution network that came with the acquisition as well as

the fact that through this acquisition Allianz has entered the bancassurance market,

means that in the future Allianz will profit from this deal

Strengthen asset management position: the asset management segment of Allianz is

beginning to become integrated It was composed of Pimco, the U.S based fund

manager, Allianz's asset management operations and Dresdner's asset management

operations When these groups fully integrate, strong cost savings should be realised,

particularly in back office operations In October 2002, Allianz became the first foreign

entity allowed to operate in the Chinese Asset Management sector and now the

company owns 33% in a joint venture with Guotai Junan Securities Entering Asian

markets, because of their strong growth, is a positive step, and especially China is an

increasingly sought after location for investors The fact that Allianz was able to enter

the Chinese market so early, means that it already has an advantage over its competitors

Threats

Becoming too diverse: many companies have been trying to achieve a perfect model of a

financial conglomerate, able to serve all areas of financial services and in turn attract

more clients and ensure loyalty of the existing ones Allianz is working to achieve this

aim, trying to follow the example of Citigroup and grow the business to represent all

aspects of the financial services industry, for example adding non core industries, such

as investment banking The problem here is that investment banking has a highly

different management structure and culture The Allianz board was too keen to maintain

the autonomous management strategy that it neglected to monitor the actions of

Dresdner sufficiently and this is the main reason why Allianz had to pay for this mistake

with the losses it incurred after the acquisition of Dresdner

Competition from foreign insurers: foreign insurance companies are currently trying to

penetrate the German market, especially the personal motor market, where there is a

threat from motor dealers and manufacturers, which are looking to set up their own

in-house motor insurance division Potential problems exist within the Allianz Global Risk

combined ratio increased to 126.3% (end of 2002) At the time of writing, this figure is

below 100%, however, a similar event/downturn could increase the ratio further

Company activity snapshot

According to Allianz, German government plans to toughen supervision of insurance

companies will impose needless costs and bureaucracy on firms "The supervision of

holdings will place a bureaucratic burden on internationally active firms such as

Allianz We can't see any notable added value for supervisors," said Allianz in the

press release issued by the company in September 2004 Allianz would have to

spend a six-figure Euro sum on extra audits of some 12 holding companies within

the group The proposed regulation is part of a law aimed at bringing reinsurers

within the scope of Germany's supervisory authority, BaFin German insurers are

also expected to use the hearing at the end of September 2004 to attack plans for a

life insurance policy guarantee fund modelled on the country's bank deposit

guarantee scheme The fund, financed by all companies, would step in to guarantee

pay outs to policyholders should the company that wrote the policy go under, which

would replace the voluntary Protektor fund set up by the industry in 2003

In July 2004, the spokesmen from UK insurance group Allianz Cornhill and parent

Allianz in Germany dismissed rumours that the company had opened talks with

Britannic Group to sell its closed life business as speculation Reports in the UK

press suggested Britannic, which now specialises in run-off and policy

administration, could pay up to £150 million ($281 million) for the closed Allianz

Cornhill life business Allianz Cornhill’s life operation was closed to new business in

2001 and currently has about half a million policyholders The group had not stated

formally that it would be open to offers from a third party but it would be likely to at

least consider a sensible bid Britannic is part of a fast-growing dedicated business

for the management of discontinued life business in Europe and particularly in the

UK For Allianz, the sale of the life insurance business in the UK would mean limited

presence in the UK Such step would also send a message that Allianz is still trying