Allianz CEO Oliver Baete. Picture: REUTERS
Allianz CEO Oliver Baete. Picture: REUTERS

London — Europe’s largest insurer, Allianz, is in the early stages of evaluating a variety of potential acquisition targets as deal-hungry CEO Oliver Baete scans the market for growth, people with knowledge of the matter said.

Those on the list range from Switzerland’s Zurich Insurance Group and the UK’s RSA Insurance Group to Hartford Financial Services Group in the US or, going further afield, assets in China, they said.

Allianz is working with a few advisers informally in exploring options, but deliberations are at an early stage and may not result in a deal, the people said, asking not to be identified as the discussions are confidential.

A spokeswoman for the company said Allianz would consider acquisitions where the target is a fit on strategy, culture and price, with its board jointly taking the decisions.

An abundance of capital and returns crimped by low interest rates have prompted rivals to turn to acquisitions, with France’s Axa beating out Allianz to seal a $15.2bn deal for XL Group earlier in 2018. That deal prompted speculation that the German giant, facing a lacklustre stock performance in 2018, could target Zurich Insurance, worth about $46bn, to bolster earnings, reap cost savings and be more competitive.

"The strategic rationale is compelling" as their businesses are complementary, James Shuck, an analyst at Citigroup, said. "Any deal would be unprecedented in the industry, transforming global competitiveness," he said.

Even if Allianz were to pay a 20% premium over Zurich’s share price, the transaction could still boost the Munich-based firm’s earnings 10% and offer an additional €10bn in capital synergies, Shuck said.

Allianz, whose shares have dropped about 5% in 2018, has not made any formal approach to Zurich about a merger, the people said.

Baete’s focus was on implementing the "renewal agenda" that he put into place shortly after taking the helm in 2015, the company’s spokeswoman said.

The German insurer may need to look elsewhere for a willing partner, with Zurich executives, including CEO Mario Greco, publicly opposing big-ticket deals. Other targets Allianz has looked at include Australia’s QBE Insurance Group, Bermuda companies Argo Group International Holdings and Aspen Insurance Holdings, as well as London-based Aviva and the asset management arm of Sweden’s Nordea Bank.

Representatives for Zurich, RSA, Hartford, Aviva, Aspen, Nordea Bank and QBE declined to comment, while spokesmen for Argo did not respond to a call or e-mail.

Baete is concerned about being left behind by both Axa and American International Group, which scooped up Validus Holdings for $5.4bn in 2018, and is keen to explore a transformative deal, according to the people. The 53-year-old, who had also previously expressed his willingness to pursue takeovers, remains keen on bolstering his defences in the property and casualty sector and the US market, they said.

Appetite for megadeals

The CEO appeared to signal anew his appetite for megadeals after telling the Financial Times in May that Allianz would be open to a "merger of equals".

Though Baete did not confirm the speculation that has linked Allianz with Zurich Insurance, and noted that the prospect of paying a high premium was unattractive, his comments were interpreted as a sign of interest. The company’s spokeswoman said Baete was merely explaining the circumstances under which Allianz may consider large deals.

"Strong balance sheets and lack of growth tend to make you look more externally around mergers and acquisitions," Arjan van Veen, an analyst at UBS Group, said. But large deals, even when they "make sense", pose significant hurdles, he said.

Those may be some of the concerns dogging Allianz chairman Michael Diekmann, chief financial officer Giulio Terzariol and board member Helga Jung, who may be more hesitant about pursuing a big deal, the people said. Mergers and acquisitions were not the main priority, and Allianz is focused on operational improvements, Terzariol said in May.

Baete has ruled out any hostile takeovers. An unwilling seller would complicate any pursuit and bump up the price.

Zurich’s top executives have already signalled that the company will not prove an easy conquest. Greco said in May that merger and acquisition activity "is not really a priority" because the challenges and opportunities stemming from technological change cannot be addressed by combining businesses.

"Consolidation doesn’t solve the issues," Greco said. "The size of the company doesn’t really matter."

Those views were echoed by Zurich’s chief risk officer, Alison Martin, who said big mergers are "incredibly distracting".

Baete will also want to avoid the fate of his counterpart Thomas Buberl at Axa, whose shares have fallen about 12% since the XL acquisition was disclosed amid concern that he overpaid. His predecessors at Allianz also have a chequered record regarding mergers and acquisitions, underscored by the doomed 2001 purchase of Dresdner Bank.

The Allianz CEO’s comments to the Financial Times may have been a signal, particularly to smaller insurers that are thinking of a sale, to view the German giant as a friendly suitor that would be willing to treat the acquired business as an equal, offering autonomy in operations following a deal, the people said.

Even so, Allianz may face a tough road ahead in identifying the right target.

"In the case of XL, you had a willing seller and a willing buyer to pay the price," Van Veen said. "As they get larger, it gets a bit more … difficult."