Allianz Plans Restructuring; 7480 German Job Cuts

June 23, 2006

Germany’s Allianz AG confirmed growing speculation that it would launch substantial cost cutting measures with the announcement on Thursday, June 22, that it plans to reduce the number of workers at Allianz Deutschland AG (ADAG), its German insurance operation, by 5000. It also plans to cut another 2480 jobs at its Dresdner Bank subsidiary. The Bank’s investment arm, Dresdner Kleinwort Wasserstein, will become simply Dresdner Kleinwort, and will integrate its operations more closely into the group.

The announcement did not stress the job cuts, but rather referred to Allianz’ aim by 2008 to make its “insurance business more customer focused, operate more efficiently and achieve growth.” The “new operating model,” which Allianz said would “include an updated concept for business locations and employee counts,” is expected to result in cost savings of “between 500 to 600 million euros [$628 to $753 million],” while the costs of the restructuring are estimated at €500 million ($628 million).

The bulletin indicated that most of the job cuts will result from the closure of “administrative locations in Germany from the current 21 to ten. The model calls for four service areas, each having one major location. They are: Berlin and Munich as well as Hamburg together with Hanover and Bremen, plus Stuttgart together with Karlsruhe.” It added that “after the restructuring, 25,000 office and sales positions will be preserved at the remaining locations, while 5,000 jobs will be cut.”

The news comes in the midst of the current World Cup Soccer tournament, and, while it hasn’t pushed football news off the front pages of Germany’s newspapers, it has provoked strong reactions from the Country’s labor unions, especially in the wake of Allianz latest profit figures. It posted net income of €4.4 billion ($5.53 billion) in 2005 and €1.8 billion ($2.26 billion) for the first quarter of 2006.

Gerhard Rupprecht, CEO of Allianz Deutschland AG explained: “We have by no means taken this decision lightly, especially as we are extremely conscious of its effect on people’s lives. These are painful but necessary steps to ensure a sustainable increase in Allianz’s competitiveness.”

Allianz Group CEO Michael Diekmann defended the restructuring. In an interview on the Group’s Website (www.allianz.com) he noted: “Unfortunately, the measures that have been announced are absolutely necessary: over the past few years in Germany, particularly in insurance business, we have been continually losing clients and therefore market share. We cannot not simply stand idly by.”

He did indicate: “There will now be consultations with the economic committees on the plans that have today been announced by ADAG and the bank, plans for the settlement of interest for the implementation phase of the measures. As far as possible, clear-cut terms have been created for the employees affected. At ADAG we said we will make no compulsory redundancies until the end of 2007. We have also agreed on an extensive social welfare plan for the German insurance companies.”

Allianz said the “restructuring of the German insurance business, which began last year, should reverse this trend and is a response to growing cost pressure in the insurance industry.” “The improvements we initiated will make us more competitive in acquiring new business”, Rupprecht noted. “We are also starting a number of growth initiatives with the objectives of product innovation, improved support for our sales partners and increased focus on the customer. We are convinced that we will be able to bring about a sustainable improvement in our market position.”

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