"Living on credit is never sustainable"

But what do you plan to do with the bonds, which, after all, continue to account for the lion's share of your investments?

The European insurance sector has to do more to move away from investments in government bonds. This will be helped along by efforts to make the European capital market more open for corporate financing. Let's take a simple comparison: in the US, two-thirds of the financing for private companies comes from bonds and one-third from bank loans. Here, the ratio is the exact opposite. This is an area in which investors with a long-term focus could play a particularly significant role in supporting trade and industry.

To what extent are shares a worthwhile investment given the high dividend yield?

Allianz holds around 6 percent of its assets in shares. One argument that has to be weighed against the return is that shares can come under a great deal of pressure in weak market phases. This was most recently shown by the sector's painful experience in 2002/03. Lessons have been learned since then. Due to their price volatility and the capital backing required as a result, shares are only suitable for insurers to a very limited extent as a means of matching the maturities of assets and liabilities. But this asset and liability matching is a priority if you want to achieve a good solvency rating in economic terms.

What general economic policy measures should be taken to revive the economy other than the interest rate stimulus we mentioned earlier?

The banking crisis merely served to highlight what is wrong with many countries in Europe. Living on credit is never a sustainable strategy. What is more, austerity and growth do not have to be mutually exclusive. No company, big or small, can afford to focus all of its attention on austerity, but has to find the ideal balance between saving in some places and investing in others. This creates scope for long-term growth. And the same goes for governments, too.

Economic growth, however, is on the back burner in the euro zone at the moment. How is this affecting Allianz, a Group whose main sales markets are none other than Germany, France and Italy?

These three countries make up our core market, that's true. Our OEs in these countries are doing very well despite the economic environment. We managed to clearly increase our lead over many of our peers in the first quarter of the year. In Italy, for example, the volume of the insurance market fell by 5 to 6 percent in the period from January to March, while our business on the Italian market gained 2 percent. We haven't reduced our margin at all. In fact, our profit margin is extremely good in a historical comparison because we are now seeing our restructuring initiatives bear fruit.

A market study published by economists at Munich Re suggests that the global insurance market will grow by 3 to 3.5 percent in real terms, but points clearly to the emerging markets as the countries set to report the really impressive growth rates.

We share these expectations for market growth and agree that the pace of growth will vary considerably from region to region. The acquisition of the insurance arm of the Turkish company Yapi Kredi in the first quarter shows that Allianz is building on its position in the emerging markets. We already have a solid position in countries like India, Malaysia, Indonesia and Latin America. But since the majority of our business is done in the world's industrialized nations, we are also looking at expanding in these regions. Achieving organic consolidation on markets that often remain fragmented still provides the most impetus at group level.

Should Allianz shift the emphasis it places on the individual lines of business, for example, focus less on the life insurance business, which has become less profitable?

It goes without saying that the P&C and liability business is more the focal point of our expansion efforts and any further acquisitions, because these are areas in which we have more control over profitability by taking measures of our own. The low interest rate environment limits the potential for pension and life insurance, particularly for traditional policies featuring guaranteed returns. Despite all of the hindrances, however, this line of business is doing rather well. Our asset management activities, which enjoy an excellent global position, provide something of a natural balance in this respect. PIMCO's investment business, which focuses on fixed-income investments, has really reaped the benefits from the low interest rates. Our group has further potential in the asset management business.

Will Allianz soon have evolved to become an asset management service provider that just happens to have some insurance business on the side?

We don't want to take things that far. Asset management for third parties has, however, become increasingly significant over the past few years. In the first three months of the year, PIMCO and Allianz Global Investors generated a combined total of more than 40 billion euros in net cash inflows. In the US, we were the number one on the market in terms of volume growth. This part of the group still offers potential for expansion in Europe and Asia. There are still huge opportunities out there.

Does the group want to act as a sector consolidator in this segment?

Organic growth can normally be achieved without operational problems. Acquisitions, on the other hand, usually involve some sort of friction. This is why we would prefer to keep our well-oiled asset management engine running.

Back to the insurance business: how hard was Allianz hit by the havoc wreaked by the tornado in the US state of Oklahoma?

Be it due to mere chance or as a result of global climate change, early summer tornados have been on the rise in the US since 2011. The latest disaster is sad and difficult for all of the people affected. Allianz is underrepresented in the P&C insurance segment in the US. Because of our relatively small market share, we do not expect any considerable loss burden for the time being.

What sort of rate policy do you want to pursue? Could it even be said that a cartel strategy is being pursued, because all of the leading insurance companies say that they want to increase their P&C insurance margins?

We attach a great deal of importance to fair competition. We have increased our volume by offering attractive benefits and rates to customers that we believe to carry low risks. We are also keeping our settlement costs down. Together, these measures recently resulted in a combined ratio of only 94.3% of our revenues, which means that we are working in a very profitable manner in a sector comparison as the world's leading P&C insurer in terms of premiums.

Another aspect that we'd like to mention is the capital situation. Is it not the case that Allianz has had such substantial capital resources for so long that a further redistribution of funds to shareholders is on the cards, for example by way of the purchase of treasury shares?

The rating agency Standard & Poor’s has just confirmed our AA rating and lifted our outlook from negative to stable. The group's capital is considerably higher than the amount that S&P requires for an AA rating. But we are still far removed from a situation in which we have the resources for larger capital measures. Remember that it is still impossible to conclusively predict the impact of the Solvency II regime that is set to be introduced in Europe. In this scenario, it makes sense to keep a bit of risk capital available.

What are the chances that the Solvency II regulations will materialize? After all, they have already been postponed several times?

It is and remains difficult to reach a sustainable compromise in Europe despite varying national interests. But the sector is in urgent need of a new, economically based solvency standard. The current Solvency I regulations are not suitable. In the current financial market climate, they simply do not promote the risk decisions that make economic sense, for example when it comes to investments and ensuring that the maturities of assets and liabilities are matched as closely as possible.

Many investors see insurance stocks as being either boring or tricky - are they right?

I have to confess that we insurers probably haven't quite learned the art of selling our performance values to the outside world. In Allianz's case, however, the fact that shareholders benefited from a total return - if we combine the dividend with the share price gains - of 50 percent in 2012 speaks in the company's favor. We also reported excellent results in the first quarter of this year.

Are Allianz's shares value or growth stocks?

Our company's shares can certainly be described as value stocks with good growth potential. The Group has a high-quality balance sheet and a top rating. Shareholders will continue to benefit from the fact that our group is the global market leader in three areas of activity at the same time: in asset management, in P&C insurance and in life insurance. The balance between these areas shapes the strength of our company.

This interview was originally published in "Finanz und Wirtschaft" on May 29, 2013. Republished by permission

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