Allianz CEO Oliver Bäte talks with German news outlet FOCUS Magazin about the current challenges facing society, ranging from inflation to the climate crisis – and why the health of the company as a whole matters, including non-financial aspects like customer satisfaction and employee engagement.
Interview by Carla Neuhaus and Thomas Tuma
The following interview was published in FOCUS Magazin on December 10, 2022.
Mr. Bäte, despite the war and crises, Allianz is heading for a record profit. Are you some kind of super-CEO?
Certainly not. I can’t accomplish anything at all by myself. Success is always a team sport. But together, we have in fact been able to become more resilient. It used to be that our business went fantastically well in boom times, but when a financial crisis came along it sometimes knocked us to our knees. It’s different today.
Oliver Bäte, Allianz CEO, during the FOCUS Magazin interview with Carla Neuhaus and Thomas Tuma. Photo credit: Dirk Bruniecki.
Allianz is not the only corporation that’s reporting record profits just now. Have we overestimated the crisis, or is the big shock still ahead?
A lot of German companies are indeed better positioned than some people might think. We already saw that during the pandemic, and it’s not least of all thanks to government. In spite of all the criticism you can aim at the government, in supporting business they did a lot of things right. Of course all of us have to finance that aid.
Are you worried that German debt might rise too sharply?
Definitely – yes – especially because even now it’s already rising at every level – among municipalities and states, at the federal level, the EU level. A number of factors are converging there. And some things haven’t been taken into account at all so far. The European Central Bank (ECB), for instance, will probably take a loss of 650 billion euros this year because of its bond transactions. That’s the bill for the long era of loose monetary policy. As the most important player in the Eurozone, Germany will have to make up for 20 to 25 percent of that loss.
So, save after all?
The problem is, a lot of EU countries assume that Germany will always pay “in solidarity” if things get tight. After all, we’ve also been able to shoulder the burden in the past 10 or 15 years. That won’t be the case anymore in the future. So we need to communicate honestly in Europe about what we can afford and what we can’t. It’s like on an airplane – there too, in the worst case, you need to put on your own oxygen mask before you can help anybody else.
How long can the “Traffic Light” coalition government finance aid projects like the gas price subsidy?
I’m wondering that too. Of course it’s right for the short term to help people who urgently need help now. But that won’t work permanently. We have to cut energy costs fast and fundamentally. And there, it’s not by any means just a matter of consumers. Ultimately, the future of the entire German business model and our export economy will depend on it.
So buying liquid natural gas in Qatar won’t be enough?
In any case it won’t help us stay competitive sustainably. On top of that, we need to remodel our energy supply and rely even more on renewables.
Investors are concentrating more and more on green financial products. Allianz itself stopped long ago investing in companies that mine coal, and won’t insure coal-fired power plants anymore. What’s your view with nuclear energy?
Nuclear power is a very important energy source, but equally a risky one – and by the way, not just technologically, but in terms of business management, when I think about liability. Completely aside from the question of what do we do with the waste?
Risk assessment is one of Allianz’s most important jobs.
Obviously, and there’s nothing that happens without risk. Just getting out of bed in the morning, I could break my foot. What’s important is to deal with it awarely, and to get the right risk mix. All the same, when it comes to energy we now need to ask a lot of questions anew. There are nongovernmental organizations that are asking us to get out of fossil energy sources entirely. All I can say to that is, we’d be glad to, but until that’s possible we need something to live on. We need a fact-based plan out to 2050.
So Allianz is going to remain faithful to classic energy sources for the time being.
No. We need to make distinctions here. Let me give you an example. Just lately I was traveling with the Chancellor in Asia, where two companies came to us that want to build big wind farms, and were looking for investors.
Sounds good.
But then it turned out, they’re coming from the coal business, and they have a problem with Allianz because we won’t invest in any company that still generates more than 30 percent of its electricity from coal. They have to set up their wind farm business separately, because otherwise a corporate group like that could never get support with the ecological transformation.
That’s crazy!
And on the other side, we constantly hear the charge that as the industrialized West, we often act very arrogant. Precisely in countries where people still don’t have enough electricity or any clean water. And here, they say, along we come, warn about burning coal or producing palm oil, and refuse financing. I think in Europe we are indeed very self-centered. A lot of countries would be glad if we at least took the trouble to understand their perspective.
Do you have any understanding for ecological campaigners who more and more often are gluing themselves to roads in this country to call attention to climate change?
I have two children in their early 20s who are also furious, but they’re not throwing paint pots. I can totally understand the younger generation’s anger that lots is happening too slowly. But the law draws clear limits for justified protest.
Is climate change insurable?
On an individual-risk basis, certainly, if it’s economically reasonable. In that case it’s not just the premium, but also precautions that play a role. Of course it’s not understandable anymore why people for instance build new buildings in areas along river banks that are obviously at risk of flooding.
War, the energy crisis, climate change – what consequences does all that have for a company like yours?
We need to assume that shocks like the ones we’re experiencing these days will occur more often – whether geopolitical crises or climate disasters. Both customers and employees will go to the companies that they especially trust. So trust has become our primary currency. It’s no longer just a matter of sales and profit, but the health of the company as a whole, which also includes our customers’ satisfaction and our employees’ engagement.
Sales and profits have been clear yardsticks of capitalism up to this point. Is that changing now?
Absolutely. You can already see that from the topics that are driving us and that we’re pushing ahead – from diversity to sustainability. We’re hard at work to ensure that the best people will be working for our company in the future as well. And it wasn’t those of us on the Board of Management who discovered climate change, it was young colleagues who began to ask very sharply, what are we doing as the country’s biggest investor?
And how do you answer them?
That we take our responsibility very seriously, and are taking action. But all that won’t do us a bit of good if we’re not Number One with our customers. And if we don’t regularly deliver good figures for our shareholders, we’ll lose the economic freedom to do what we really can. It all revolves around the clientele.
What role does digitalization play in all that?
A big one. For instance, we’re already using software that can detect from the wording of an email whether the client is annoyed right now. The employee then gets a notice, and can deal better with the client’s concerns. That’s how software can support our colleagues. On the other hand, having bots – meaning computer programs – taking over conversations with clients all by themselves – I don’t believe in that. Getting everything automated is hogwash. If I have a serious accident and call up my insurance company, I want to talk with a human being. That too is all about trust.
You recently lamented that Allianz pursued the wrong IT strategy for eight to ten years. But as CEO you could have counteracted that long ago, couldn’t you?
And that’s also what I’m doing now. What I’ve learned is, it’s not enough to introduce a spectacular technology. We also need to be able to roll it out properly. For instance, we’ve supplemented our core system with millions of lines of programming over the years. If you want to change something at some point there, you need to test for months whether everything is all still working. That’s complicated and expensive. Now we’re doing it differently, we’re remodeling the system into individual modules.
In an in-house event, you got into quite a lather talking about the subject. How did you arrive at that diatribe?
It’s our job to be there for our clients. It makes me angry when employees want to help our customers the way the customers rightly expect, and they can’t do it because of technical limitations. Which is why that wasn’t a diatribe, it was a pep talk. If our technology doesn’t support our employees in providing service for our clients, anybody should be able to say that openly. That’s the only way we can get better.
Allianz now manages the hardly imaginable total of more than 2.2 trillion euros. How is the company protecting its own money, and its investors’, against inflation and crises?
We’re profiting from our many years of expertise in investing, which is exactly what’s called for in economically challenging times. Of course high inflation and developments in the capital markets confront us too with challenges, but we can see the long-term opportunities that higher interest rates mean for our business.
What does that mean for small investors?
Intelligent investing is more important than ever. It’s true the interest rates on instant access savings accounts are somewhat higher again, but real buying power is being eaten up by high inflation. That’s why investors should take advantage of the long-term opportunities for real value.
So where can people still invest now?
Hard question. Basically, long-term investments make sense even in times of crisis. What’s important is to stick with it. In any case for Europe’s citizens it was the wrong track to keep printing money since 2015, supposedly to prevent deflation. We’ve been anesthetized too long with the drug of cheap money. The only thing that kindled was the current inflation.
Isn’t it mainly exploding energy costs that are responsible for inflation?
That’s certainly one cause. But the ECB sowed the seed with all its buy-back programs. People thought they were rich. Which meant that long before the war in Ukraine, a lot of producers and dealers began raising their prices. The value illusion of steadily rising stock prices, especially in big tech, added another factor. So the shock now is all the greater. In Europe at least, the loss in purchasing power will persist for a good while longer. Managing that will also be a big job for us.
People can also lose money on Allianz. Your Global Investors subsidiary (AGI) made false promises to major investors about the safety of their investments. The settlement is costing you six billion dollars. In retrospect, what mistakes did you make?
Fundamentally, it was a matter of criminal acts by three fund managers who evaded the control systems and falsely portrayed the risks of the Structured Alpha Funds. That especially sharpened my awareness of the risks that are not part of our classic business model, and that seem very improbable – for instance, criminal conduct by individuals. What was important was that we acted quickly and decisively, and compensated our clients. With that, we showed you can rely on Allianz. On top of that, we critically reviewed and improved AGI’s control systems.
Nevertheless, between the end of June and the end of September alone, clients withdrew almost 20 billion euros from the funds of your Group subsidiaries Pimco and AGI. Your stock price was also massively damaged by the scandal.
Indeed. Since then we’ve almost entirely recovered the losses on the stock price. Many of our employees actually took advantage of the price slide to buy up stock through the employee stock plan. You can hardly ask for stronger evidence of trust.
Allianz is also the largest vendor of life insurance in Germany. Even if interest rates rise, those policies’ yield is still below the inflation rate. Is a contract like that worthwhile at all anymore?
Our yields are still higher than those of many competing products. And of course we’re offering more and more inflation-protected investment classes. That’s highly attractive for our clients in the present situation.
Currently the interest rates on two-year federal bonds are higher than for ten-year ones. Is the market going crazy?
With developments like that, at least it’s a warning about getting into a recession. The cooling off in China also suggests that. In Germany and Europe we mustn’t make mistakes now. The money we want to spend must be earned first. That’s news to some people.
Talking about China: The German government is working on a new strategy for relations with the People’s Republic, and wants to reduce immoderate economic dependency. That’s probably not something you like, because you actually want to expand your business there.
Our China business is still very small …
… but it could still grow …
… and we’re glad that we’ve gotten a full license there. But for us, at least, the question of dependencies or clustered risk doesn’t come up yet the way it does for some car makers, for instance. Nevertheless, my answer would probably be similar – we have to accept that despite all the new sensitivities, certain things in other countries won’t be so easy to change for the moment.
More specifics, please!
We thought that many growing middle classes in South America or Asia wouldn’t just think our cars and machinery were great, but also our way of life. We have to defend our values system, obviously, but please let’s do it first here at home before we point fingers at governments in the rest of the world. There’s enough to do here in Germany.
So it won’t be possible to do without economic dependencies?
To start with, we shouldn’t at all act as though we can divorce ourselves from countries like China as partners. That’s not just a major sales market for us, but also a supplier of important innovations, for instance in battery technology. Germany can’t manage at all without global trade. But what we certainly must do is pay much more attention that our know-how isn’t suctioned off. And we need to diversify our supply chains. Incidentally, that doesn’t just go for China. We mustn’t let ourselves be blackmailed by anybody.
Today our employees actually expect us to speak up on questions about all aspects of our core business – like provision for retirement, for instance. At the same time, unlike our politicians, I’m not elected to express my ideas on things like the mobility transition or human rights in Qatar. I get irritated at the expectation that these days we managers are supposed to communicate a quotable position on everything. If we don’t, we’re treated as cowards. If we do, sometimes we, along with our companies, wind up in a storm of controversy.
About Allianz
The Allianz Group is one of the world’s leading insurers and asset managers with more than 126 million* private and corporate customers in more than 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 706 billion euros** on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage nearly 1.7 trillion euros** of third-party assets. Thanks to the systematic integration of environmental, social and governance criteria in our operations, business processes and investment decisions, we continue to be recognized as among the sustainable insurers in the Dow Jones Sustainability Index (September 23, 2022). In 2021, over 155,000 employees achieved total revenues of 148.5 billion euros and an operating profit of 13.4 billion euros for the group.
These assessments are, as always, subject to the disclaimer provided below.
*Including non-consolidated entities with Allianz customers.
** As of September 30, 2022
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