Allianz Leaving Korea & Taiwan

Europe’s largest insurer Allianz has put its South Korean life insurance business on the block as part of a global overhaul in a tough low-interest rate environment, sources with direct knowledge of the matter said.

Allianz’s planned sale, which comes as a number of European financial players are cutting back in Asia, is one of the steps with which CEO Oliver Baete is preparing the German insurer for a “perfect storm” caused by low interest rates, tighter regulation, weak economic growth and geopolitical risks.

Last week, Allianz missed analysts’ forecasts with a €6.6 billion (RM30.75 billion) net profit for 2015, which Baete partly blamed on a €171 million goodwill writedown the company took in the fourth quarter on its Asian life operations, the majority of which is in Korea.

South Korea has proved to be a challenge for several foreign financial institutions, with marquee global names, including ING, HSBC and Standard Chartered, cutting their exposure to the market in recent years.

Zurich Insurance Group is also reviewing its Asia strategy and exploring the sale of its Hong Kong and Singapore businesses, Reuters reported this week.

Allianz has a large operation in South Korea. It reported €1.6 billion in statutory premiums and an operating loss of €51 million in South Korea in 2014, according to the group’s 2014 annual report.
Allianz operates in 14 Asian markets, providing property and casualty insurance. But, the bulk of the company’s life and health insurance policies are underwritten by its South Korean unit.

Besides the South Korean unit, some analysts have identified Allianz’s Taiwanese life business as underperforming. CEO Baete pointed out in the annual results press conference last week that Korea and Taiwan were markets where high interest rate guarantees were given in the past that were no longer economically serviceable.

“And it’s not only about profitability, this is often misunderstood,” Baete told the news conference, adding that Europe’s new Solvency II rules required insurers to set aside more capital as a buffer to cover interest guarantees, prompting Allianz to take a harder look at long-term revenues versus costs for those products.