Allianz continues to eye Asia opportunities as it aims for market leader status: CEO

ALLIANZ continues to seek growth opportunities in Asia, as the German financial services giant aims to be the market leader in the countries it operates, said its chief executive Oliver Baete.

In an exclusive interview with The Business Times, Baete noted that the Asean region presents opportunities to drive further growth.

His comments follow a Wednesday (Jul 17) announcement from the insurer on plans to acquire a 51 per cent stake in Singapore’s Income Insurance, in a deal valued at around 1.5 billion euros (S$2.2 billion).

The deal – part of Allianz’s goal to strengthen its presence in Singapore – will likely catapult the company to be the largest general insurer in the Republic, as well as one of the top-ranking composite insurers in the South-east Asia region, Baete said.

According to data from GlobalData, Allianz had a 4.1 per cent market share among general insurers in Singapore in 2022, ranking it at number seven. Income ranked second, with an 8.6 per cent market share.

The deal is also expected to make Allianz the sixth-largest insurer in the local life insurance market.

Asia growth story

Apart from Singapore, Allianz has been busy with acquisition deals across Asia in recent years.

In June, Allianz Global Investors, one of the asset managers under the company, acquired a 2 per cent stake in China’s pension insurance giant Guomin Pension, two months after it won final approval to launch a 100 per cent-owned fund unit in China.

In 2022, Allianz’s Thai subsidiary also fully acquired health insurance company Aetna Thailand.

Asean as a region presents opportunities for global players from more mature markets to grow due to its positive fundamentals.

The region “has been more stable than people have been predicting”, where respective governments have found a way to manage various risks and position their economies to be important destinations for investments, Baete noted.

Product-wise, demand in the region is also growing. Longer lifespans mean the need to save for retirement and health protection, especially against critical illnesses.

Baete is looking at the region for growing its asset management business as well, which he reckons is a way of providing people with the proper access to build and protect their wealth.

This is important as distribution costs are typically the highest in South-east Asia compared with more mature markets. There is also a need to create products that can provide decent returns, he added.

The Asean region, where there are geopolitical uncertainties and proper public infrastructure lacking in some parts, also has the risk of being more prone to weather changes and climate change.

“But the fundamentals – as long as the political systems and the rule of law prevail – are fantastic,” Baete pointed out.

Consumers, distributors, shareholders

While investing in growth is important, Baete said that he is always making sure the investments do not have an impact on the insurer’s ability to generate free cash flows, which he expects is the better way to grow business in the long term.

He also emphasised the importance of finding partnerships that can contribute real value to its franchise.

“We’re not in Asia to buy top line; we want to build a resoundingly profitable business,” Baete said.

“We’re also worried about things that look great from a volume perspective and not so great from a value perspective,” he added.

He noted the need to meet the interests of three stakeholders: consumers, distributors and shareholders.

“We are not in the business of selling products that don’t provide what we call minimum value to clients,” Baete said.

The insurer also needs to balance the interests of distributors, to whom most of the costs go typically, he noted.

Meanwhile, shareholders want to see real cash returns over time.

Amid a recent trend of insurance stock repricing, Baete said that a large contributor is that investors are increasingly looking for real returns from dividends and cash flows.

In that aspect, the CEO added, the insurer has been “very proud” to build a business that has been “resoundingly profitable” in generating cash flows despite strong investments in growth.

Allianz has increased or maintained its dividends in the last decade. For its financial year 2023, dividend per share stood at 13.80 euros.

It also generated positive free cash flows in the last 10 years, with the exception of 2022. The free cash flow for FY2023 was 23.2 billion euros.

“We are more interested in an underlying trend that makes sure we don’t overpay for market access or distribution access; but that should not serve as an excuse not to grow,” Baete said.

But growth is not without its challenges.

Challenges

Speaking about consolidation in the insurance industry, Baete noted that the rising volatility in markets as well as geopolitics means that companies need to have very strong balance sheets to adequately diversify.

A rise in regulatory influence is also putting cost pressures on insurers. Thus, Baete expects that the ability to work with regulators will be a potential source of competitive advantage as well.

Meanwhile, companies also need to invest in technology and their branding, which is a continual and capital-intensive move.

“It’s very important for consumers in the world, but trust is a scarce resource,” he said.

For Singapore, he noted that it is even more important to have a leading market share in the highly competitive and small market.

He also sees a huge opportunity to change the dynamics in the life insurance industry, particularly for the average person to have access to lower cost distribution and higher-value products.

While Singapore already has several well-established players in the life insurance space, Baete said that he is not too concerned about competition, and is focused on boosting the quality of the insurer’s services.

“What is very important for us is to see what we can offer to the consumer, and if our offering is competitive to what others do.”