Earnings increase in second year of restructuring

While initial estimates from the Gesamtverband der Deutschen Versicherungswirtschaft (GDV), Germany’s major insurance industry association, indicate that the market grew 0.2 percent last year, premium income at Allianz Deutschland AG and its subsidiaries grew 1.6 percent, to reach 26.1 billion euros. The major growth driver was life insurance, especially the tax-advantaged RiesterRente and BasisRente retirement products, as well as the one-time premium business in financing company retirement systems.

In property and casualty insurance, a sustainable profit-oriented customer acquisition policy again took precedence over increasing revenues. Premium income in private health insurance was up slightly, thanks to both new business and rate adjustments. Allianz Deutschland AG, together with its subsidiaries, holds a market share of nearly 16 percent.

In property and casualty insurance, premium income decreased 1.2 percent to reach 9.4 billion euros. Most of the decrease came from developments in car insurance. Although prices were kept stable, many customers with especially safe driving records moved to a lower-cost claims-free category.

The resulting decrease in income, together with the decreases from portfolio reallocations and a reorganization of the fleet business, caused premium income to decline 2.4 percent, to 3.6 billion euros. Revenues in non-motor insurance nearly matched the prior-year levels, at 5.8 billion euros.

The increase in new business boosted premium income in life insurance 3.9 percent, to 13.5 billion euros. Periodic premiums, which account for more than two-thirds of premium income, increased 0.7 percent, to 9.4 billion euros. Apart from sales successes with the BasisRente and RiesterRente pension products, new products like investment-oriented occupational disability insurance also contributed their share.

One-time premiums, which came to 4.1 billion euros at year’s end, increased 12 percent. Allianz Pensionfonds and the sharp increase in work-time investment accounts ("Zeitwertkonten") made a particularly noteworthy contribution to this success. Customers also sought out two new guarantee policies that include capital-market opportunities, the IndexPolice and PortfolioPolice. According to current surveys by the GDV, Allianz Leben expanded its market share from 16.6 to 17.1 percent.

In the private health insurance segment, premium income rose 1.0 percent, to  3.1 billion euros as of year’s end. The increase came from new business and from the rate adjustments necessitated primarily by the higher cost of health care.

Demand suffered from the substantial effects of the health care reform on the private health insurers’ business model. Full-coverage health insurance clearly felt the impact of higher barriers to entry and the uncertainty caused among potential customers by the ongoing debate on health care policy.

New business at Allianz Deutschland AG – measured in terms of new or additional premiums – grew 6.9 percent, to 6.3 billion euros. The strength of new business in life insurance made up for the declines in property and casualty insurance and private health insurance. In property and casualty insurance, new and additional premiums were down 4.5 percent against the year before, to 1.2 billion euros. New business in car insurance declined 5.1 percent, because of ongoing price competition.

Internet insurer Allianz 24 positively stuck out: new premiums were up 73.1 percent, to  28.9 million euros. New business in non-motor insurance decreased 3.7 percent. By contrast, new and additional premiums in life insurance were up 10.8 percent, to 5.0 billion euros, clearly cutting loose from the downtrend in the market. In private health insurance, new premiums were down 16.9 percent, as an indirect consequence of the health care reform.

Costs at Allianz Deutschland AG were down against the prior year. Savings from the restructuring made a particularly good contribution here. Administrative expenses decreased 5.5 percent, to 1.1 billion euros. Acquisition expenses decreased 18.9 percent, to 1.8 billion euros, primarily because of rotating updates in capitalized amounts in life insurance.

This contributed to a double-digit increase in the operating profit, which rose nearly 14 percent, to 2.2 billion euros. Life insurance played a disproportionately large role here: the operating profit in this segment improved 47.2 percent. Allianz Deutschland AG’s net profit for the year increased 9.1 percent, to 2.0 billion euros.

The investment portfolio grew 3.4 percent, to 184.1 billion euros, while investment income declined 11.3 percent. The reason was that the prior year’s capital market environment was more favorable. A conservative investment policy takes advantage of opportunities for earnings in the market while keeping risk clearly within bounds. Here Allianz also counts on real-value investments in stocks. Life insurance customers benefit from stocks’ opportunities for long-term returns through increasing benefits at maturity.

The new Insurance Contracts Act now requires insurers to allow insured individuals to participate systematically in valuation reserves. This makes an insurer’s financial strength even more transparent to customers, and offers an even stronger inducement to sign up, Rupprecht explained. Compared to its competitors, Allianz Life uses its financial strength to its customers' benefit. With a return of 5.6 percent on insurance contracts for 2008, it is far ahead of the rest of the market.

In product development, Allianz Deutschland AG counts on customized solutions that take account of the special characteristics of individual backgrounds, customer groups and phases of life. "Our product policy will continue to focus on solutions that cross boundaries between insurance lines and supplement cash benefits with assistance benefits," Rupprecht emphasized.

Allianz Deutschland AG plans to leverage the experience it has gained with the 55Plus products it launched in 2007, and apply it to multi-line solutions for customers in other phases of life, besides focusing particular appeals on specific customer groups. Specialized products will also be offered for corporate and commercial clients.

But the law’s requirement to run lines of insurance as legally separate companies will continue to force insurers to write separate policies, and customers will have to deal with a large number of separate contractual documents. "Until that changes," says Rupprecht, "there can be no real all-in-one solutions." Given the market’s requirements, he noted, there was some question of whether the current requirement to keep lines of insurance separate will continue to be viable. 

Allianz Beratungs- und Vertriebs-AG is Allianz Deutschland AG’s largest and most important sales channel, accounting for between 70 and 85 percent of new business, depending on the insurance line. "Pooling sales organizations under the restructuring plan has turned out to be the right decision," was Rupprecht’s verdict. "An independently managed exclusive sales organization can address different business segments and customer groups with an even sharper focus." 

Besides expanding sales capacity – some 2,000 new hires are planned for 2008 – sales will also tap new growth areas with a number of innovative concepts. "A more differentiated presence in the market, and operating excellence, are the keys to success for our sales team," the CEO explained. To address various target groups accurately, the company is counting on specialization and custom-tailored solutions. For example, corporate clients will be assisted by specialized agencies, and Turkish-speaking customers can also get information about Allianz products in their native language.

With its "Internet-ready agency" concept, the company has made an interactive sales and service portal available to its agents, to help them attract new customer groups. More than 7,000 agencies have used the service to date. Allianz Deutschland AG especially seeks to achieve operating excellence by opening what it calls "Center Agencies" in major cities.

Here the participating agencies can make use of a shared back office, reducing the agents’ administrative load and leaving them more time for selling. Younger and smaller agencies will get even more intensive support from now on, so that they can be more productive and more successful across the board. Each step in an agent’s career will be certified after the agent successfully completes the phase.

Last year, Allianz set up a pilot trial with Dresdner Bank. The project has now spread to 120 banking agencies. In 2007 these signed up an average of 14 new bank clients per month, and sold 30 banking products – three and a half times as many banking products as conventional agencies. The in-bank agencies achieved significant increases in private loans including outstanding-balance insurance, in money-market and checking accounts, and in the fund business.

In December, Dresdner Bank welcomed its one-millionth new client being brought in by an Allianz agency. "We see that as evidence of our customers' interest in financial services from a single source," was Rupprecht’s assessment of the coup.

Building on experience with the pilot trial in the Northeast service region, the new operating model will be gradually introduced in the other service regions before 2008 is out. This process will be accompanied by an extensive program of qualification and training sessions. Some 10,000 employees will be readied to work in the new arrangement, in more than 440 different training modules.

Premium growth is expected to continue at Allianz Deutschland AG and its subsidiaries once again in 2008. The market in property and casualty insurance will remain intensely competitive. In that environment, sustainable profitability will remain the company’s top priority. In life insurance, the insurer foresees that the trend toward private retirement coverage will continue.

"Allianz has a strong starting position, and in 2008, we will buck industry expectations and try to raise premium income in life insurance even further," said Rupprecht. The future changes in standing clientele and new business in private health insurance will depend on the further effects of the health care reform, he said. Here Allianz Deutschland AG assumes that demand will be rather slow.

The continuing restructuring process will reduce costs still further. From today’s vantage point, Rupprecht said, all expectations were that the company will be able to weather extraordinary stresses like those that resulted from winter storm Emma. For that reason – unless there are additional extraordinary expenses – he said the company expects operating profits to keep rising.


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