Takeover Targets Insurance Giants on the Hunt

German insurance behemoths Munich Re and Allianz are keeping an eye out for large acquisitions, but the prices needed to come down first.
Quelle: dpa
Jörg Schneider, CFO at Munich Re.
(Source: dpa)

Jörg Schneider, the chief financial officer of Munich Re, is a reserved and subtle man. He has been known to refer to himself as "boring," though when the future of his company, the world's largest reinsurer, is in question, Mr. Schneider's proclamations are anything but dull.

"We are open to large acquisitions but the prices simply haven’t been right in recent years," Mr. Schneider told Handelsblatt in an interview. "Growing insecurity in the world has not been reflected in the number of possible acquisitions."

Potential acquisition targets have been "simply too expensive - and I'm afraid that won't change anytime soon," he said. "If we were to make an acquisition, however, then it wouldn’t be in traditional reinsurance.”

Such candor from one of Germany’s most influential managers, coupled with Munich Re’s willingness to expand its portfolio beyond its usual competencies, is a sign of the hardships facing the sector.

The company's vision under the newly designated chief executive, Joachim Wenning, who will take the reins from Nikolaus von Bomhard at the end of April, is therefore directed at possible acquisitions in the primary insurance market.

"Primary insurers with specializations that would expand our know-how and that we could offer a larger platform to, would be ideal acquisition partners," Mr. Schneider said, noting that the purchase of Hartford Steam Boiler, a specialized insurer in the United States, was a perfect example of the kind of technical knowledge that Munich Re was interested in acquiring.

But Mr. Schneider's company's isn't the only one in the market for a mix of traditional understanding of complex insurance issues combined with a fresh look at the latest technical innovations. Many of its competitors would also be interested in expanding their businesses in a similar way.

Munich Re is still eyeing the United States - the world's largest insurance market - with interest, despite the nationalistic chords being struck by President Donald Trump.

02 p29 Munich Re in the Lead-01

"Regionally, in addition to Asia, some dynamic markets in South America and a number of places in Africa, the U.S. is very interesting as it is the largest insurance market in the world and is still registering considerable growth," Mr. Schneider said.

With that, Germany's two largest insurance companies find themselves in a dilemma. They would indeed be very keen on a larger acquisition, yet the market has proven to be more difficult than expected.

Just a few hundred meters away from Munich Re's headquarters in the Bavarian capital, the head of Germany's largest primary insurer Allianz SE, Oliver Bäte, has long been searching for a major acquisition of his own.

So far, the opportunity to buy a good company for a reasonable price has not presented itself, Mr. Bäte said recently at Allianz's Capital Markets Day, an event the company hosts for analysts and investors.

But once it does the company is prepared to pay a premium - "even a big one," Mr. Bäte said. And that is especially true if the purchase allowed Europe's largest insurer to become a market leader in one country or even take over a market completely,

As it turns out, Allianz may not have to wait very long after all. As Handelsblatt recently reported, Allianz held discussions with Australian insurer QBE about a possible acquisition.

According to people familiar the discussions, Mr. Bäte met with the head of QBE, John Neal, shortly before Christmas. Mr. Bäte is also said to have put an offer of 15 Australian dollars per share on the table. At that price, the entire deal would be worth some 20 million Australian dollars, or €14 billion.

The U.S. is very interesting as it is the largest insurance market in the world and is still registering considerable growth. Jörg Schneider, chief financial officer, Munich Re

If the deal were to become a reality, Allianz would supplant France’s AXA to become the world’s largest insurer by total assets.

The remarks of Mr. Schneider and Mr. Bäte are a departure in the traditionally tight-lipped insurance industry. It is uncommon for top German executives to be so forthcoming about their companies' interest in acquisitions.

The Italian bank Intesa Sanpaolo is also considering acquiring Generali, Italy’s largest insurer, and potentially dividing the company up with Allianz. Intesa is mainly interested in Generali's asset management units and was going to offer the rest to the highest foreign bidder. The Italian insurer's operations in France, in particular, have apparently caught Allianz's eye.

"Only a large takeover would help us," Mr. Bäte recently said in a newspaper interview. Adding to Allianz's dilemma is the fact that Europe's largest primary insurer will only consider buying companies that have clean balance sheets and are affordable. At the moment, American firms are extremely well rated, but Mr. Bäte has reiterated his claim that any move would have to make economic sense for Allianz.

Such reservations, however, haven't prevented any of Allianz's competitors from exploring possible takeovers. The Dutch insurer NN recently announced a planned fusion with its rival Delta Lloyd. The merger was received well on the stock market even though NN was forced to dilute its strong capital base.

The worldwide transaction volume of takeovers in the insurance sector tripled last year compared to 2014. At the same time, the number of so-called megadeals - i.e. transactions with a volume of more than €5 billion - has risen sharply, according to a joint study by Mergermarket and Willis Towers Watson.

"I believe that we will definitely see some major transactions in the coming months, but I'm skeptical about us reaching the level of 2015," said Michael Klüttgens, an insurance consultant with Willis Tower Watson.

However, size is again counting for more in the industry after yields came under pressure due to low interest rates. Suddenly, people were looking more closely at which costs could be reduced through size advantages.

"Particularly in branches that aren't prone to massive growth anymore and in which stronger regulatory requirements have increased costs is where size advantages play an important role," Mr. Klüttgens said.

Gain in efficiency associated with increased market share, such as in inventory management or marketing, "lead to lower cost ratios - this is how products can be made more attractive for consumers," Mr. Klüttgens added.

That's why the outgoing chairman of the British insurance icon Lloyd's, John Nelson, is convinced that the industry's appetite for acquisitions won't be satiated anytime soon.

"I wouldn’t be surprised if we saw consolidation in the coming years.” Mr. Nelson told Handelsblatt late last year. “Actually, I’d say this is highly likely.”

For Germany's two biggest players, Allianz and Munich Re, such a prophecy must seem like a foregone conclusion.


Carsten Herz leads Handelsblatt’s asset management and insurance coverage and is based in Frankfurt. Christian Schnell writes about markets and covers the auto industry. To contact them: [email protected], [email protected]