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Allianz SE, Europe’s biggest insurer, will proceed with caution as it searches for takeover gems among the jetsam washed up by the financial market storm.
The German group has said it is ready to come out of its shell to look for acquisitions as fears over the euro zone debt crisis and complex new Solvency II insurer capital rules ebb.
Chief Executive Michael Diekmann said the company is seeking targets in the property-casualty sector – homes, cars and businesses – as well as in industrial, travel and credit insurance, but does not expect to do big deals.
Bankers familiar with Allianz’s thinking say the insurer has held its fire on takeovers, waiting for foundering banks and insurers to start jettisoning their cargo of insurance subsidiaries at an attractive price.
The European Union has ordered some groups, like RBS and ING, to hive off their insurance businesses as a condition for approving state aid in the crisis, creating opportunities to reshuffle the market.
“Allianz is trying to sweep up the fallout where stress has been, but won’t be doing anything transformational,” said one banker familiar with the strategy.
“They’ve made clear that they won’t raise equity capital to do a deal,” he said, adding that Allianz would not do anything to jeopardize its solvency strength under new capital rules for the insurance industry due to take effect in 2014.
Instead, the insurer aims for bolt-on acquisitions that give it additional scale where it is already present, perhaps through the addition of brokerage and sales channels, he said.
A good example is Gan Eurocourtage, the brokerage unit being sold by ailing French insurer Groupama, which is under regulatory pressure to shore up its solvency margin.
Allianz is one of several parties looking at Eurocourtage, sources close to the sales talks told Reuters.
“Eurocourtage gives you some insight into the type of property they are looking for, a mid-size acquisition that helps expand their distribution channels,” said Ben Cohen, an analyst at Canadian investment bank Canaccord Genuity.
The Financial Times Deutschland newspaper reported Allianz has submitted a bid of less than €200 million ($264 million) for the broker, well below Groupama’s hopes of €700 million [$924 million].
Allianz can afford to submit a low-ball bid because it is not desperate to make acquisitions, investment bankers said.
WAR CHEST
The company has also drawn lessons from the turmoil of the financial crisis and steep losses from its ill-fated ownership of Dresdner Bank, which it struggled with for years to turn around before finally selling it to Commerzbank in 2008. [IJ Ed. Note: Allianz lost almost $7 billion in the deal].
“They won’t do crazy deals anymore,” said a second banker familiar with Allianz’s approach.
Analysts and investment bankers said it was difficult to estimate the size of Allianz’s war chest now. Diekmann in late 2010 said the company had €1 billion [$1.32 billion] available for acquisitions, but that was before enduring months of excruciating negotiations over Greek debt write downs.
The second investment banker said Allianz would feel comfortable doing deals of €1 to €3 billion [$1.32 to $3.96 billion], while too many smaller deals would be fruitless for the bottom line.
“It takes as much management attention to run a business in Albania as it does in Poland, and the M&A process is not much less complicated, either,” the banker said.
Meanwhile, bits and pieces of various insurance operations have begun to float to the surface.
Dutch bancassurer ING is mainly selling life insurance operations, while RBS plans to float its Direct Line Group in the second half of the year.
But Allianz is likely to face competition for deals, with rivals AXA and Generali showing keen interest in expanding in emerging markets.
AXA was one of the two winning bidders in HSBC’s sale of general insurance businesses last month.
Allianz, in turn, had been subject to speculation it might raise its holding in Hartford Financial Services beyond its current 5 percent stake. But the first banker familiar with Allianz’s strategy dismissed such talk. Allianz has repeatedly said its Hartford stake is purely financial.
Takeovers in life insurance and in the U.S. market are not on the cards for Allianz, he said.
Analysts say Allianz’s hope for a secondary listing in China may open the door to stronger cross-selling and cross-capital tie-ups with local partners, in a market that has proved tough for foreign insurers.