Munich A few days after taking over the Polish business from British competitor Aviva, Allianz is speculating about a mega takeover. Rumor has it that Europe’s largest insurer is currently exploring a bid for US insurer Hartford at a very early stage.
According to US sources, the possibility of taking over the American property and casualty insurer is currently being discussed with consultants. The Bloomberg agency first reported on it. Allianz did not want to comment on the rumors.
According to insiders, however, the purchase is considered unlikely. Hartford had already rejected a takeover bid by the US insurer Chubb in the amount of 23 billion dollars (19.5 billion euros) last week.
For Allianz, a takeover would mean a change in strategy. So far, the Munich insurer had generally considered acquisitions possible, but CEO Oliver Bäte always focused on small and regional acquisitions.
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The acquisition of Aviva’s Polish business, which Allianz paid 2.5 billion euros for, also fits into this scheme. So far, the group was only a small player in Poland’s insurance market.
Hartford’s takeover would be an entirely different order of magnitude
However, a possible takeover of the property and casualty insurer Hartford would be on a completely different scale and anything but easy for Allianz, which is well-funded. A look at the annual reports of the past few years shows this.
On average, the three units of property/casualty insurance, life/health insurance and asset management generated cash flow of 7.5 billion euros over the past three years. In the Corona year 2020, however, the figure was 7.3 billion euros. However, this amount that is actually earned and freely available will be reduced by the announced dividend payment of a good four billion euros. Only the rest of around 3.5 billion euros would be available for acquisitions.
The majority of a possible purchase in the order of 20 billion euros or more would therefore have to be raised as part of a very complex financing process using equity and external financing. Depending on how it is structured, this in turn would have a negative impact on Allianz’s solvency ratio. At the turn of the year it was 207 percent after 212 percent a year earlier. In a simulated extreme scenario, the alliance could thus raise more than twice the funds required for this.
So far, the internal goal has been that Allianz’s solvency ratio should be over 180 percent. In order to be as solidly positioned as possible, the group stopped a share buyback program that had already been initiated last April. Since 2017, the group has acquired treasury shares worth EUR 8.2 billion in a total of five programs.
A possible takeover of the US insurer Hartford would also greatly shift Allianz’s operational focus. Europe and the USA would thus be the key regions, and the repeatedly announced shift in business towards the future markets in Asia would recede into the background.
After initial difficulties, the group had recently achieved considerable success in China. The conclusion of life insurance there last year rose by around 50 percent.
Oliver Bäte is skeptical about large-scale takeovers
Allianz boss Bäte was only critical of a possible major takeover again in February. “We are not planning a 100 billion acquisition,” he replied to a corresponding question. Allianz would be a long way from such a dimension even if it were to take over the US insurer Hartford, but it is known that Bäte is also skeptical about such dimensions.
In recent years, takeovers at Allianz have ranged in size from several hundred million to the low single-digit billion range. The good half-dozen acquisitions that Allianz has made in the past few years in Great Britain, Brazil, Australia and most recently in Italy and Poland fit this pattern perfectly.
Investors were accordingly calm about the rumors on Monday. Like the market as a whole, the Allianz share gained around half a percent in value.
More: Allianz takes over Aviva subsidiary – and buys into the Polish growth market.