The joint venture German insurer Allianz Group signed up to with Liverpool Victoria Friendly Society Ltd., or LV=, will make the group the U.K.'s third-largest retail insurer and the second-largest commercial one, CEO Oliver Bäte said Aug 4.
Allianz will invest a total of £713 million in the British company's general insurance in two stages. The purchase of an initial 49% stake for £500 million in the second half of 2017 will be followed by a further 20.9% acquisition in 2019, for £213 million, valuing LV='s general insurance business at £1.02 billion.
Subject to regulatory approvals, the resulting property and casualty business will have more than 6 million customers with policies worth over £1.7 billion.
"Our market position in the United Kingdom will be improved systematically over time," Bäte said in a press conference following the release of second-quarter earnings. He praised LV= as a "highly innovative brand" that enjoys a leading position in customer satisfaction rankings.
"It's a new way for Allianz," he added, pointing to what he saw as the beneficial combination of local brand recognition and good reputation on the part of LV= and the German insurer's global reach and financial power.
Allianz owns other consumer-facing insurance brands in the U.K. such as Petplan, and is also present in the commercial and auto markets under its own name. The joint venture will get Allianz's personal home and motor insurance renewal rights, while Allianz will acquire the renewal rights of LV='s general insurance commercial insurer.
Allianz will not take part in LV='s life business, the CEO said.
Brushing off Brexit fears, Bäte said Allianz saw the U.K. as "a difficult market but a very important insurance market."
"We are going to keep investing into the U.K.," he added.
The deal was structured in two steps for tax reasons and because of challenges presented by the co-operative structure nature of LV=, said Bäte, adding that the roughly 25% fall in the market value of the pound following the U.K.'s vote to leave the EU in June 2016 was part of the reason Allianz bought in.
"We expect that we will be jointly able to be successful and to build it up into a leading competitor in the U.K.," he said. He suggested that Allianz will bring forth an ambitious program of digitization that may result in redundancies at LV=.
Meanwhile, CFO Dieter Wemmer said Turkey was a sore spot for the insurer over the period, owing to a price ceiling imposed in April by the government on all motor policies.
"[The regulator] set a price reduction of 30% for all motor insurance and therefore revenues have dropped significantly in Turkey. As we are the market leader in motor insurance there [we] have been hit quite a bit by that," he said.
The company's operating profit for property and casualty business in Turkey was €292 million for the quarter, a 34.7% year-over-year fall. At group level Allianz posted €1.99 billion in net income attributable to shareholders for the second quarter of 2017, up 83.4% on the second quarter of the previous year.
Allianz's U.K. corporate structure includes Allianz Holdings Plc. The company operates in Turkey through Allianz Sigorta AS.