Big-time European insurers have ‘governance’ issues; Allianz woes far from over

European composite insurers may have a reputation problem for laggard governance and  Allianz should take note of equity market conviction that the Structured Alpha funds fiasco has not been forgotten or forgiven, a key European equity market brokerage has warned.

“When it comes to the composite insurers, the elephant in the room is governance,” analysts at the Berenberg investment bank said in research covering historical share performance of European insurers.

Every major crisis for the big-time European insurers has seen shares fall 30% relative to the STOXX Europe 600 Insurance Index, which Berenberg counts out to a full 3% increase in the risk premium for each of the stocks and the comparable increase in cost of equity to those firms.

To wit: AXA following the XL deal, Allianz following the Dresdner sale during the financial crisis or Zurich following a change of management after the Tianjin disaster. On average, Berenberg noted that shares don’t “fully and sustainably recover” for 2.3 years.

Ensuing recovery for shares may look like mean reversion, but in each case actually required “efforts to boost risk management, simplify the business model and increase solvency,” Berenberg noted. “In each case, we recall that the recovery felt slow, as if the stock were in a value trap.”

Management at Allianz should take note where Berenberg sees a “communication gap” between management and markets on the question of the Structured Alpha fund fiasco that cost Allianz billions in settlements and fines plus a US asset management license.

“Allianz considers the matter all settled while investors do not think it is; they want Allianz to show it has recognised the full impact of this event and to demonstrate what it is changing to prevent a repeat.”

Investors might be miffed after having had to sign off on the 2021 accounts before hearing final word of the Structured Alpha settlements, which even bore impacts for management compensation.

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