Interview: "Our operating business is strong again"
The 2004 annual report posts good figures and for the first time lists the pay packages of individual executives. Where does the Allianz Group now stand - and what does the future hold in store? An interview with CEO Michael Diekmann and CFO Helmut Perlet.
? What do you think are the most important results of the 2004 financial year?
Helmut Perlet: The fact that we’ve been able to boost our operating results so impressively. We’ve been able to earn money again through our own work. All business areas have contributed to this result, with a respectable boost in profitability in property insurance, strong growth in life insurance, particularly in the USA and Germany, and vigorous net inflows in asset management.
Allianz CEO Michael Diekmann
? What pleases you most about 2004?
Michael Diekmann: I was especially pleased with the performance of our French Group company AGF and Dresdner Bank. Both exceeded our expectations for 2004. AGF achieved a combined ratio of 98.5 percent and produced record results. Dresdner Bank faced the task of restoring profitability before restructuring costs - and in fact did so even after restructuring costs. Dresdner Bank is back on course.
Helmut Perlet: For me, the results demonstrate very clearly that it pays to concentrate on operating discipline. This is reflected in a combined ratio of 92.9 percent for property and casualty insurance and our cost income ratio of 62.9 percent in asset management. Also, Dresdner Bank has made remarkable progress in reducing its risk provisioning by 66.8 percent and its administrative costs by 7.5 percent.
Helmut Perlet: For me, the results demonstrate very clearly that it pays to concentrate on operating discipline. This is reflected in a combined ratio of 92.9 percent for property and casualty insurance and our cost income ratio of 62.9 percent in asset management. Also, Dresdner Bank has made remarkable progress in reducing its risk provisioning by 66.8 percent and its administrative costs by 7.5 percent.
? Where did problems arise?
Michael Diekmann: I’m not yet satisfied with the development of our share price. Yes, it rose sharply in the fourth quarter, but overall the result was still disappointing. Confidence has grown apace, but we can clearly see from the share price that there’s still a lot to do before investors show more confidence. In particular they want to see what’s behind the "+One" of the 3+One program – how Allianz can sustain its value and outperform its competitors. This will be the focus of our work this year.
Allianz CFO Helmut Perlet
? What are your objectives for the current year?
Helmut Perlet: We will continue to focus on profitable and sustainable growth. We want to increase total sales as in 2004 and continue to improve our operating results.
For the individual segments, our concrete goals are the following: For property and casualty insurance, our aim is a combined ratio of less than 95 percent. For life and health insurance, we want our operating profit to reach at least 1.5 billion euros. In 2005, Dresdner Bank should earn its cost of capital of 8.85 percent. And in asset management, we aim to increase our operating profit by at least 10 percent, and to generate positive net income for the year.
For the individual segments, our concrete goals are the following: For property and casualty insurance, our aim is a combined ratio of less than 95 percent. For life and health insurance, we want our operating profit to reach at least 1.5 billion euros. In 2005, Dresdner Bank should earn its cost of capital of 8.85 percent. And in asset management, we aim to increase our operating profit by at least 10 percent, and to generate positive net income for the year.
? Meanwhile a number of Group-wide initiatives have been announced. How are they interconnected?
Michael Diekmann: We want to create value and grow profitably. For us, as a financial services provider, there’s only one way to go about this: We need to focus consistently on the needs of our customers, and we have to optimize our business processes and make them more innovative. To successfully put this into practice we need capable, highly motivated employees.
Our Group-wide initiatives – Customer Focus, Best Practice and the international Leadership Values – specifically address these issues within the framework of the 3+One program.
Our Group-wide initiatives – Customer Focus, Best Practice and the international Leadership Values – specifically address these issues within the framework of the 3+One program.
? Let's talk about executive pay packages which you have now disclosed individually for the first time. What has changed?
Michael Diekmann: We changed our system in 2002 with one essential goal: We wanted to ensure that pay depends to a large extent on performance. We greatly increased the variable components – such as one-year and three-year bonuses, stock-linked remuneration.
Fixed pay has not increased since then. We now have a ratio of about a quarter fixed and three quarters variable pay. In other words, if business is poor, variable pay will plummet. If things go as well as they are at the moment, where we’ve worked our way up from a low minus to a good plus, pay will rise accordingly.
Fixed pay has not increased since then. We now have a ratio of about a quarter fixed and three quarters variable pay. In other words, if business is poor, variable pay will plummet. If things go as well as they are at the moment, where we’ve worked our way up from a low minus to a good plus, pay will rise accordingly.
? So why doesn’t that apply to employees?
Michael Diekmann: I’m in favor of it – and I speak out about it at every opportunity. We should also introduce individual, performance-oriented pay components for employees. This is already practiced in some companies, and I think that it’s only logical and fair. Why should it only be a privilege reserved for managers? They’re not the only ones who contribute to the company’s value.
But apart from that, employees in other Group companies are enjoying a degree of profit sharing which is not linked to individual performance. This is the case, for instance, at our major German insurance companies. And there, too, this sum has greatly increased in the past two years because performance figures and cost ratios have developed favorably.
But apart from that, employees in other Group companies are enjoying a degree of profit sharing which is not linked to individual performance. This is the case, for instance, at our major German insurance companies. And there, too, this sum has greatly increased in the past two years because performance figures and cost ratios have developed favorably.
? Recently, focussing solely on yield has been strongly criticized in Germany. But share prices can be influenced by such measures as large-scale job cuts or the sale of business segments.
Michael Diekmann: You mean a sort of neocapitalism. It’s possible that in the short term, we could score points that way and be hailed as heroes on the market. But we want to grow sustainably and create lasting value. Such actions would only bring us an advantage in the short term, which will soon fizzle out.
The Allianz Group has never stood for such a thing and in that sense I’m pleased to be traditional, even if it hasn’t always been easy these past two years. Gradually, though, our investors are noticing that our 3+One program has teeth. They’ve started to regain confidence in us because we haven’t made any false promises.
This principle is also reflected in our pay system, by the way. The mid-term bonus and share-related components are not designed to support short-term optimization.
The Allianz Group has never stood for such a thing and in that sense I’m pleased to be traditional, even if it hasn’t always been easy these past two years. Gradually, though, our investors are noticing that our 3+One program has teeth. They’ve started to regain confidence in us because we haven’t made any false promises.
This principle is also reflected in our pay system, by the way. The mid-term bonus and share-related components are not designed to support short-term optimization.
? Mr. Diekmann, you’ve now been in office almost two years. There have been two diverse developments: On the one hand, the beginnings of a new culture, and a more open exchange of criticism and ideas across all levels. On the other hand, there’s been an unrelenting drive to keep costs down.
Michael Diekmann: We’ve got two years of hard work behind us. We’re still not as efficient as we should be in some areas. Taking on the job with four turnaround cases was a formative experience for me. Nothing is as ruthless for employees as this kind of drastic restructuring. I’d rather play the role of a consistent controller and risk manager than see us get into such a situation again.
Recently, as I passed the university here in Munich I read a slogan: "Of course companies are shedding jobs – they think it's the money that works." At Allianz it’s the employees that work. I made it clear from the outset that I lay store by this principle. I want a working environment in which we all strive to work and perform to the best of our ability. I think that this is the only way in which the Allianz Group will be able to enjoy strong growth. And that again is the only honest and sustainable way to create jobs.
Recently, as I passed the university here in Munich I read a slogan: "Of course companies are shedding jobs – they think it's the money that works." At Allianz it’s the employees that work. I made it clear from the outset that I lay store by this principle. I want a working environment in which we all strive to work and perform to the best of our ability. I think that this is the only way in which the Allianz Group will be able to enjoy strong growth. And that again is the only honest and sustainable way to create jobs.
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