Allianz trims 10% from management bonus on Structured Alpha fiasco; finds ‘no evidence of wrongdoing’

Global insurer  Allianz will trim 10% off the would-be annual bonus payments to management board members and make parallel cuts to equity grants in the long-term incentive programme after massive provisions for legal claims kept the group from hitting its bottom-line target in 2021.

But thus far, Allianz claims, no blame can be pegged to any management board member for the collapse of Structured Alpha investment funds early in the pandemic.

"There are no findings so far of possible breaches of duty by the Board of Management," the annual report, issued by the group on Friday (March 4), says of both internal and commissioned external reviews. Allianz further calls out "no evidence of any wrongdoing" by board member Jacqueline Hunt, who oversaw the US life and investment operations.

Management will suffer in the paychecks, as previously signaled by top management.

Speaking February 18, CEO Oliver Bäte (pictured) had claimed the incident brought "significant impact on remuneration for every board member."

"Management will carry our fair share of the burden," Bäte told the mid-February press conference.

In the event, each board member took a 10% cut against the would-be target bonus level plus a parallel reduction in distribution of the 2022 long-term incentive programme, the remuneration report suggested.

But management might still end up with a larger bonus than for 2020, terms of the program nonetheless indicate.

Allianz pays annual cash bonuses against a target level, adjusted first by the group's performance vis-a-vis targets then further adjusted by a performance measure for each member that can add or remove up to another 20%. That is the performance indicator that is being hacked down for 2021 by another 10 percentage points (on the 80 - 120% scale) on account of the legal issues. Following the loss for the investment division, Hunt received the lowest possible individual contribution rating, mandating a 20% cut against her target bonus.

Despite the massive €3.7 billion provision against 2021 earnings, the group's financial goals were said to have been achieved 103.5% in 2021 as the benchmark is a mix of above-target pre-provision EBIT with the below-target net profit.

Given the major shortfall vis-a-vis financial targets in 2020, hit at some 75% of plan after Covid-19, the 2021 bonuses will thus very likely be an increase year on year.

The fiasco could still impact bonus levels for 2022 given that not all legal claims against Allianz have yet been settled and the €3.7 billion provision will still have to be topped-up by a to-be-determined sum.

The matter could also reduce the long-term incentive payment moving forward, given that programme's attachment to Allianz share prices, the annual report also noted.

Allianz saw legal claims against its US investment operations rise to $6.3 billion to the end of 2021, the group admitted in the just-released annual report.

The sum runs well above the €3.7 billion ($4.1 billion) in provisions which Allianz announced mid-February on word it was nearing agreement with major plaintiffs. Those deals have since been closed, Allianz has now said.

At the time, Allianz CEO Bäte had claimed his firm was "very pleased with progress" and that deals struck to date had covered "the vast majority of investors."

Talks continue with lingering plaintiffs, management noted in the annual report. Management declined to estimate additional costs tied to the remaining legal claims. Other investors could still join in, Allianz warned.

Allianz came under fire from investors in its Structured Alpha funds starting in mid-2020. The SEC and Department of Justice came along with investigations not long thereafter. Claimants charge Allianz with misrepresentation of risk after the funds suffered heavy losses in heavy market volatility early in the pandemic.

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