AGCS to focus on organic growth and Fireman’s Fund integration as M&A fever grips market

Do not expect radical changes at AGCS now that Chris Fischer Hirs has firmly got his feet under the CEO’s desk at the Munich-based international industrial insurance group. Against a backdrop of significant M&A activity in the global insurance and reinsurance sector, Mr Fischer Hirs was asked by Commercial Risk Europe if Allianz has any big plans for major strategic changes in direction after years of organic growth. The answer was a clear no. “It’s business as usual,” he said. When asked specifically whether Allianz would join the current rush to acquire rivals in this highly competitive market the response was decidedly lukewarm. Acquisitions can never be ruled out of course, but Mr Fischer Hirs certainly did not give the impression that AGCS is on the hunt for a deal to play catch up with acquisitive rivals such as Zurich, ACE and XL.hideMr Fischer Hirs’ lack of excitement about potential acquisitions appears to be backed up by comments made by Allianz group CFO Dieter Wemmer during a recent analyst conference call to discuss second quarter results. Mr Wemmer said that in this M&A environment smaller, available assets are all ‘very highly priced’. According to online results service Seeking Alpha, Mr Wemmer reportedly said: “You see high earnings multiples [that] people are expecting…even on some of the bigger deals. So you have to really think through very well what is your strategic move with an acquisition. Does it really close [a] strategic gap? Is it worthwhile to pay a high multiple in this situation or is it just a simple add on acquisition to help you with your scale and profitability? Then I think you are more limited in paying strategic premiums.” Mr Wemmer continued: “In the insurance space…people are probably desperate because they don’t find anything to acquire and you have really to watch out how you want to play it. In the end it is about making money and returns and not just showing some shiny deals.” These comments do not suggest that Mr Fischer Hirs is under big pressure from Munich headquarters to close a big acquisition. It should also come as no surprise to the market that Mr Fischer Hirs does not have any radical plans to change direction at AGCS. It is worth remembering that he has been at the company from the start and does not need to dramatically stamp his mark on the group. His career at Allianz began in 1999 when he joined Allianz Risk Transfer (ART) from Union Bank of Switzerland (UBS), holding a variety of roles including CFO and latterly CEO. ART became part of AGCS in 2006 when the brand was created to focus on large corporate and industrial client business through the merger of the various Allianz companies operating under the Allianz Global Risks and Allianz Marine & Aviation brands. In 2007 Mr Fischer Hirs was appointed to the AGCS board of management with responsibility for Asia-Pacific and ART, reporting to then CEO Axel Theis. He was appointed CFO of AGCS in 2009 and finally became CEO late last year when Mr Theis was promoted to the main Allianz board responsible for global markets, including AGCS. Mr Fischer Hirs worked closely with Mr Theis and the rest of the board to help shape and grow the AGCS business into one of the world’s leading industrial insurance groups. He is therefore unlikely to want to turn the place upside down. But, at the same time, Mr Fischer Hirs is as aware as anyone else in this market that the world is changing fast and AGCS has to evolve. Corporate risk and insurance managers are more demanding than ever as their companies expand into new territories and markets in search of growth, and explore new distribution systems and methods. All this needs to be risk managed. Customers demand ever better service in key areas such as claims and effective construction of truly compliant global programmes. Risk managers also want ever-broader coverage and innovative support service solutions to help cover and manage emerging risks such as cyber and supply chain. Buyers do not want to pay much more for this extra cover and service. The mass of capacity currently available in the international insurance and reinsurance market means that customer demands are difficult to ignore. Faced with the need to offer better and broader coverage in this highly competitive market environment, some of the leading insurance groups have opted for expansion via acquisition or merger. The planned purchase of Chubb by ACE, Catlin by XL and, most recently, confirmation by Zurich that it is considering an offer for RSA are all based on the need to deliver improvements to customers and a decent growth story for investors. The answer for Mr Fischer Hirs to the challenges presented by this market, however, is to box more cleverly with the already expanding global reach and resources that his group has available. Allianz has offices in 70 countries and through partnerships with other companies the ability to service customers in 160 territories worldwide. It already has the global footprint, specialist people and backing of the global Allianz group, including partner companies such as credit insurer Euler Hermes, needed to cope with the complex new world economy. Moreover, do not forget that the group recently made a big step forward through its decision to integrate the main P&C operations of US operation Fireman’s Fund into AGCS. This brings roughly $3bn of fresh premiums into the operation. In May of this year AGCS also announced the appointment of Ulrich Kadow to lead the commercial insurance business in Canada reporting to Art Moossmann, President and CEO of AGCS North America. AGCS said at the time that Canada is an area of ‘strategic importance’ for Allianz and that it would use some of the specialisms developed by Fireman’s Fund to grow the business there. “This is significant. It is not a takeover, we are really using the talent of two companies to create Allianz as a significant player in the North American market. For our customers and brokers the message is strong: Allianz is here to stay. There is no doubt that Allianz has to be in the US, you can’t pull out,” explained Mr Fischer Hirs. “There is still price pressure in the US of course. We understand that and therefore it is about offering more products to the client. It is not about substituting rate declines with more products but ensuring that the customer has the chance to get more from Allianz.Art and his leadership team are doing a great thing here. There is one organisation, one leadership team and they are ahead of plan and maximising the opportunities,” he continued. So for Mr Fischer Hirs and his colleagues the mantra seems to be to make more of what AGCS already has. “The key is not to get bogged down in the discussion about the soft market and overcapacity. There is opportunity out there. I say let’s seize that opportunity by being different,” Mr Fischer Hirs told Commercial Risk Europe. One of those opportunities is the chance to hire experienced and skilled new staff who naturally become victims of overlaps between divisions of newly combined businesses, or are not happy with the way integration is managed. “Obviously there are always opportunities for us to hire people who are not happy with the mergers because there will be overlaps. We can acquire people and teams,” said Mr Fischer Hirs. There is also the opportunity to gain new customers during periods of consolidation as risk managers seek to diversify their carriers. “If you are a prudent risk manager you will want four or five carriers on your programme, and if two of them merge the range has naturally reduced and buyers do not want that. We have experienced that in the past when we have acquired new portfolios. We lose some business because the customers need to diversify,” explained the AGCS CEO. Mr Fischer Hirs is also aware that the new market dynamics and the consolidation of serious competitors such as ACE and Chubb is going to present competitive threats as well as opportunities. “The combination of ACE and Chubb, for example, will create very strong competition in the US. Everyone is looking at sleeping beauties currently. This means that we cannot rest on our laurels. We have to renew the right to keep our clients. We have to be consistent and we have to innovate,” he said. Mr Fischer Hirs was clear that capital is driving the current rash of consolidation. He also echoed the comments of Mr Wemmer about the impact of supply and demand on prices quoted for deals. “Capital is abundant. Either you give it back to shareholders or put it to work. The question with these acquisitions is about the multiple and whether you are destroying value or creating value. There is no right number, but you will increasingly see multiples of over 1.5 times and up to 1.8 times, so companies are paying almost double. The key is to find cost synergies and growth at the same time, and that is not easy when you carry out a merger or takeover,” he explained. “You need the talent, scale and efficiency that we have at Allianz. Others do not have that. A lot of people are saying that to be relevant you need size and we have that of course. But if I am running a $2bn company, am I a target in today’s market? Probably yes,” added Mr Fischer Hirs. A big move by Allianz to ramp up its presence further in the global corporate and industrial insurance market cannot be totally ruled out. If the right offer came along, at the right price and with the right fit it would of course need consideration. But in the current market it seems unlikely that Mr Fischer Hirs will have to turn his attention to the successful integration of a big new acquisition. His focus will instead remain on the continued integration of the Fireman’s Fund business into the AGCS portfolio, which is in itself no small task. He will also continue to make sure that the group’s worldwide resources and specialisms are made available to customers in the most efficient way possible. Solutions not products top priority for AGCS under Fischer Hirs It does not appear that AGCS is about to join the scramble to acquire for growth. So, in the absence of a dramatic acquisition, what is its CEO Chris Fischer Hirs and his team going to do with all its resources to retain existing customers and continue to win new business? First, AGCS will continue to focus and invest in the fast-growing and highly valuable international programmes market. Mr Fischer Hirs told CRE that AGCS currently has over 2,200 multinational programmes worldwide. They account for about 20% of the total AGCS book and are growing at an impressive annual rate of 8%. Mr Fischer Hirs wants this growth to continue. This will be achieved through more effective use of existing resources rather than expensive acquisitions, he said. “AGCS is really global because it is one balance sheet, one talent pool and one leadership team globally. This means that we can use the same capital in a smaller country and pass on the diversification benefit. We do not need to duplicate in each location. We need to continue to unlock the potential to offer our customers truly global corporate solutions for their needs,” he explained. Next, AGCS will continue to shift from a traditional product emphasis to a ‘client relationship’ approach and respond to what customers actually want and need. “Everyone can copy a product offering and go to the same places, but you cannot copy a client relationship if you get that right. It is not just about property, liability, cyber or contingent business interruption. For one client it may be much more about the claims relationship, another may want more self-insurance and need our operational capability and help. We need to listen and react,” said Mr Fischer Hirs. Then there is leadership. This quality, said Mr Fischer Hirs, is paramount in such a competitive market. “You need to be competitive on price but you do not have to be the cheapest. If you really want to be customer-focused you need to inspire hunger within employees. You need employees that inspire customers to want to do business with us and enjoy the experience,” he said. “The simple fact is that no one will remember what you did but they will remember how they felt. Whether the client felt left alone or taken seriously is a really big difference and cannot be copied,” continued Mr Fischer Hirs. This experience could, and probably more often should, also involve managers in the customer’s business, he added. How claims are managed and ultimately paid is clearly the most important part of the customer ‘experience’ and this is a big focus for AGCS, according to Mr Fischer Hirs. “We are in the business of paying claims at the end of the day and being with the client in risk prevention mode. It is not just about cash flow when a claim occurs. It is about how we respond and how we communicate at the time of the claim and post claim,” he explained. “You cannot leave the client alone. How to become better at the claims process is such an integral part of the delivery model. Financial strength matters of course, but it is really about delivery, delivery and delivery. This is not lip service. This is what our customers want and this is what we have to deliver,” he continued. The next big focus for AGCS is specialism and the ability to offer specialty skills and products on a truly global basis. As with most of the leading insurers AGCS offers the full range of risk transfer solutions across all the major lines and industry sectors. But it is particularly strong in certain areas in which it has the history, people and skills to offer truly market leading solutions to customers and, above all, can innovate. Mr Fischer Hirs said that part of the overall strategy to help customers obtain more from Allianz is working out how to deliver these specialist skills and products to a wider market more effectively. The next part of Mr Fischer Hirs’ core strategy is focused on people. He said people are the ‘enablers’ of his company and the industry as a whole. In order to succeed any company needs ‘happy campers’ who really want to get up, go to work and get things moving. “You spend more time at work than at home so it has to be right. You need the right community at work, the right environment and culture that you have to believe in. It has to have a meaning,” explained Mr Fischer Hirs. It is only when you have skilled, happy and forward looking people on board that you are able to truly deliver innovation and solutions for customers. “Take cyber for example. It is the easiest thing in the world to produce a policy and back it with $100m of limit and put it into the market. But you need a consistent definition because this is a very broad area. Also one client will say that they do not need $100m while the next will say that they do need it but only on a first party basis,” explained Mr Fischer Hirs. “You need to be flexible so that you can respond to customer requirements. The investment has to go into finding and training the right underwriters not just the $100m and the product design,” he added. One way in which insurers are innovating and attempting to add value and revenue to their bottom line is through add on services. AGCS, for example, recently agreed an exclusive contract with Red 24, the crisis management company that provides expert help and advice for political and terrorism risks. “As with claims this is not just about cash flow. It is about how you respond and act at a time when your reputation is at risk. You need to get back into business as soon as possible. Cash actually comes last. Being there at the time when your customers need you is the key thing. So we have to constantly invest so that we can help our customers in this way,” said Mr Fischer Hirs. It is all very well adding such interesting and useful services, but an innovation that all customers would welcome is the prompt delivery of accurate policies on time. In the international programmes market that AGCS places so much emphasis upon, this is one of the biggest headaches for risk managers. Mr Fischer Hirs is fully aware of this market-wide problem and recognises that it is up to the leading players such as AGCS to come up with answers and results for customers. “In today’s world we need to issue policies for clients in 100 countries and it is natural that they want these policies issued on time and that the risk prevention standards have been met. Therefore you have to invest in the digital world. We do not just offer insurance cover but all the service around it. So you have to invest in that,” he said. “The master policy needs to be out there quickest and with no mistakes. Local policies may not be issued so quickly because of local requirements that need to be followed and can be complex and unclear. But the market is still far too slow and in an ideal world your policy would be on your desk on inception date. To me there are no excuses. I believe some companies are better than others and we need to constantly improve on that. You cannot rest on your laurels,” concluded Mr Fischer Hirs.

AGCS to focus on organic growth and Fireman’s Fund integration as M&A fever grips market

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