Following is the transcript of a CNBC interview with Oliver Bäte, CEO, Allianz. The interview was broadcast on CNBC on 20 March 2017.
All references must be sourced to a "CNBC Interview".
Interviewed by Geoff Cutmore, Anchor, CNBC at China Development Forum 2017.
Geoff Cutmore: So let me just start by asking you if you could just share with us as we are here in China a view on what you think the real potential is in this economy to grow insurance premia over 2017 and into 2018.
Oliver Bäte: So this market is really, really exciting because not just is the economy growing still 6.5 per cent, seven percent the insurance industry is just starting. Despite the fact that it has been growing very, very strongly and even in some provinces you had two hundred billion in premia is going to grow double digit and it's going to grow faster as people amass enough wealth to start now to protect it. So it's not just house insurance in particular also life insurance that is going to continue to grow because that's what the population wants and that's what it needs.
GC: The growth rates look really strong for 2016. Do you think that those levels of growth rates are sustainable over the course of this year and next given as you point out actually growth at a headline rate is moderating?
OB: Now the issue is that we have some special effects in the last few years. People were very nervous about the stock market crash at the beginning of last year. So you had some special effects. We are looking more for longer term developments and it's likely to grow double digits for the foreseeable future. We might not have sort of the 16 growth, might be more moderate. But the key issue is here markets are growing double digits, while in the rest of the world they're growing single digit.
GC: What can you do from here to exploit that further? You already have skin in the game here. But clearly if this is where the momentum is you need to scale in this market.
OB: Now it's very interesting what you're saying foreign insurers have not had a chance to really participate in the growth we have to be honest. If you look at nominal participation in this market foreign insurers have about five percent market share across our lines of business. If you subtract the share of that Chinese joint venture partner it's actually below two percent. So this is not what you would typically call a market where foreigners have been successful. Now we cannot only blame regulation and competition for that but it's also been our own responsibility because the market is very different. You need entrepreneurs. You need to be really close to society. But now a lot of things are changing. The first thing is clients are getting more sophisticated. So when it gets to more of financial planning, when it gets to more protection and the upside in the market there's opportunity for growth. There's growth in house which is much more difficult to do it's much more complicated with foreigners can have an advantage and then there's Asset Management growth which is where Allianz is really strong because a lot of Chinese savers want to invest abroad in foreign currency and they need vehicles to do this properly. The last two years a lot of money has been leaving the country through not so good ways through Hong Kong and cash. In the future the government wants to support more structural investment solution. And I think this is where we can come in because we have decided we can serve China very well by serving it outside of China.
GC: Let me ask you first then about the insurance opportunity. How do you feel about the government's willingness to embrace you as a foreign company and allow you to operate freely in this market? Are regulations still a headwind? And do you still have to operate through partnerships rather than actually being able to take over a Chinese business?
OB: Regulation does require you to have a joint venture partner. So it's not been liberated. But on the other hand we again we should not blame regulation. Volkswagen and BMW have been hugely successful in China as have others been by working through Chinese partners. But to be fair it's much more difficult in financial services. The good news is recently particularly the president has said they want to liberalize our industry. So we are here for the long run right. Allianz has been around for 127 years so we are waiting for when the time is right, we feel the opportunity is just beginning for us.
GC: Well it sounds like it's now so who are you going to buy in this market?
OB: We never disclose who we buy and I think it's not about buying it's actually teaming up with the right entrepreneurs in this country with the right people that want to share expertise and outcomes and we have to trust more Chinese partners to go for growth.
GC: But there is this view as you know within the investment community that Allianz is looking to team up with partners or by businesses in Europe or maybe in the United States. That to me sounds like a misunderstanding from what you're saying, you're much more interested in shopping in a faster growing market?
OB: It depends on the opportunities. So it's very different whether you are operating in a mature market or in a fast growing market. When you operate in a community that we really well understand like we understand Europe, or you are operating in China where you have to be part of the community and you need strong partners. In Europe where we are very strong, we have every opportunity and the ability to acquire and integrate while in emerging markets we need strong partners to succeed.
GC: But what is your current view on the M&A opportunity then, it seemed after the share buyback program was announced, there was a little bit of distancing from this idea that you were on the acquisition trail. But help me out here, what's the current board thinking as to where there may be opportunities?
OB: Well the issue is there is something that you may desire to do and then there is the economic consideration of what is actually right to do for shareholders. We always look for growth opportunities both organic and inorganic. But at the current point in time a lot of assets are overvalued in equity markets and we are very cautious about that and we are ready to pay a premium for prime assets, but if we cannot make the economics work it would not be in the interest of our shareholders just to buy something for the purpose of buying something. So we are going to look for the right opportunity and when it arises we'll move. For now we have decided we do not want to have very valuable capital of our shareholders lying around because we have a very strong balance sheet and we'd rather give it back to those that it actually belongs to.
GC: So just to be clear in my own mind it would take something like a market pullback or correction to reset values before you'd be willing to go into markets and buy equity at these levels?
OB: No it also depends on valuation is a very important point. It also depends on management teams' willingness to work with us when we acquire a business. We want to be sure that the management team that we are buying into is ready and wants to work with us that the shareholders of the selling company are comfortable. So it's not just a pure economic view on the simple things but it's actually coming to terms with a partner on this is the right time to acquire something and that is also important. So it's valuation and readiness of the target organization.
GC: What's the problem in Europe it feels like the sector is stagnating. It's almost a dead pool or a dead zone for potential insurance growth whether you're talking life or accident at this stage what's it going to take to move the needle?
OB: The interesting thing is there is always growth even in mature industries. The question is where is it growing? So where we are seeing growth now is in innovative channels and innovative products so you can grow market share in markets that look flat. Let me give you an example: our Spanish business is growing profitably every year and every year above market because we're just outperforming. So the issue is not that you don't have topline growth you need to create it by just outperforming. And we are therefore strengthening our brand and our abilities to grab market share where others are weaker. So we have been growing organically more than three percent last year when the market was flat and that was what we have to do.
GC: Just going back to the point you made about China and regulation. You have been very keen I think on the wealth management and also investment side to get licenses here to be able to take some of that stored Chinese wealth and invest it on Chinese citizens' behalf. Just walk me through how that's going here. Because it seems that it's quite a slow process getting approval for that and it somewhat runs counter now to the government's position that they don't want to see capital leaving the country?
OB: Well it's very interesting what you're saying because number one we've just got a license to build on the ground here for asset managers so we're getting the licenses. Not true that it's not there. Actually I think the government has an interest to bring highly professional players to the market rather than have disorganized money leaving the country. And second it is high quality products that they really want both for onshore investments and for offshore investments. And this not just Allianz, many of our partners in the industry are experiencing that. So we really are hopeful that if the government really systematizes its way to international investment will be a big beneficiary. Let me give you an example with China Investment Corp. It is by the way also a shareholder of Allianz and we had a very productive relationship over the last few years. They work with us to invest in Tank and Rast in Germany and other investments in Europe. So we really believe we can be a great partner for China Inc. to invest abroad and eventually also onshore.
GC: There's a joke doing the rounds here this event that China has become the new champion of globalization. When you look at what opportunities are being presented by the regime here, compared with the narrative that we're getting from Donald Trump's government right now do you think actually there is some truth to this joke?
OB: Well the interesting thing is it's not because people and nice people are rational and intelligent. They need, as China is moving to an economy that more and more depends on global trade in an active role not just as an exporter of pieces, but of goods and services and as they go into other countries, it gets a lot more dangerous because the country doesn't have the experience and how to operate in different cultures and other environments. And as they move forward they need partners because when the dragon shows up in a small country or vis-a-vis, is small companies they want to invest in people get scared. We can help them to navigate the treacherous waters without really creating havoc. And I think they will look to partners to help them on that journey, while we, in other parts of the world are trying to blame globalization for problems that have nothing to do with globalization. They're just due to bad management.
GC: And as you look at the United States you've been very careful in your answers not to appear critical of the messages that we're getting from the Trump administration right now. Do you see any risks really to the growth story that we're getting from the U.S. from this protectionist talk?
OB: Yeah I hope that at the end of the day you know America is the greatest country I've ever been to. You know all I have done in my life has something to do with education I got in the United States. I hope that eventually intellect plays as much a role as emotions. And when you look at the facts America is the prime beneficiary of globalization. It has all the innovation the right answer is - Has America distributed its wealth properly between the very rich and the middle class. And the answer is probably has not done that. It has not provided access to education. Why? Because the real divide is between those that have college education and not. And therefore if Americans do what they've always done and come out of a crisis stronger, you'll invest into the country. And don't blame the foreigners who or problem them that are really homemade problems.
GC: And just to wrap up the style seemed to be aligning for Allianz, money is going back to PIMCO. Rates are going up in the United States which is never a bad story for the financial industry. You are giving money back to shareholders. Is there any reason to be more cautious right now around Allianz it seems to me that you guys are in a sweet spot?
OB: Yeah we are but people are not fully recognizing that yet because probably investors are nervous about what's happening with the elections. You know and the Netherlands has been positive France's positive people will get the stamina back and then even invest more strongly in our share which is up 35 percent since May 15. So, maybe the last opportunity to get a good deal and you should buy an Allianz share.
GC: Oh well that's very kind of you to suggest it but I do feel nervous about Europe. I mean we can't just write off the French elections and the political risks we see in Germany later this year can we?
OB: Yes you can't. But the reality Allianz is a global company its globally diversified 35 percent of our income is from the United States. You mentioned the turnaround of PIMCO which has been stellar and we are double A rated company that probably has triple A capital. So if you are safe in Europe, you're safe with us.