Allianz’s Baete Dusts Off Drill in Trial for Top Job

Allianz CFO Oliver Baete
Oliver Baete, chief financial officer of Allianz SE. Photographer: Guenter Schiffmann/Bloomberg

When Allianz SE executive Oliver Baete was 18, he spent his Christmas holiday drilling in the cold and rain at a road works in Cologne to save up for a moped.

Almost 30 years later the opera aficionado and former McKinsey & Co. consultant must show he can still get his hands dirty to confirm his status as favorite to be the next head of Europe’s biggest insurer. That chance comes in January when the 47-year-old, dubbed “Mr. Efficiency” by Institutional Investor magazine five years ago, gives up his position as chief financial officer to take charge of the Munich-based insurer’s western and southern Europe operations.

Baete is an outsider, who has experienced a rapid rise since joining Allianz as chief operating officer in January 2008. Twenty months later he was appointed CFO, a position it took his predecessor Helmut Perlet 24 years to attain.

“It’s obvious that Baete is warming up for the top post,” said Konrad Becker, an analyst with Merck Finck & Co. in Munich. “To achieve that, he still needs to show he can lead an operating unit.”

Allianz Chief Executive Officer Michael Diekmann, who turns 58 in December, said this month that the time was right to “execute our plan” for Baete to take operational responsibility for an insurance business. Baete, the only management board member on all four group committees, must show he can lead Allianz’s 142,000-strong workforce as well as he mastered its 669 billion-euro ($867 billion) balance sheet.

Proving Candidacy

“Baete now has to prove himself operationally to qualify as a candidate to succeed Diekmann at the helm of Allianz,” said Philipp Haessler, an analyst at Equinet AG in Frankfurt. “Just being a good CFO is not enough. Therefore, it makes sense to let him show that he can also succeed in the bread and butter insurance business and managing markets such as France and Italy certainly won’t be an easy task.”

Baete’s new board responsibility will include western European insurance except Spain, Portugal and the German-speaking countries, and also global property and casualty. France may be a key test for Baete as it’s one of Allianz’s few important markets where the insurer isn’t a leading player, said Thomas Seidl, an analyst at Sanford Bernstein in London.

“While Baete tends to have a schoolmaster’s demeanor, he’s very smart, very quick-witted and unlike other German managers he’s easily at home on an international stage,” said Becker of Merck Finck. “Compared to the rather introvert Diekmann, Baete is very talkative and outgoing.”

Baete declined to be interviewed for this story.

Biggest Achievement

As CFO, Baete started preparing the insurer for Solvency II, European Union risk-based industry regulations that are scheduled for introduction next year. That included heading the development of an internal model for the application of the new rules.

“His biggest achievement is that he’s put a more structured discipline into the group,” said Michael Huttner, an analyst at JPMorgan Chase & Co. in London, who adds that Baete understands what investors want. “He’s put a system in place to make sure Allianz delivers on its targets.”

Baete was responsible for starting the restructuring of the company’s U.S. business, turning around the German non-life division and ensuring Euler Hermes, the world’s biggest trade credit insurer, delivers on its goals, according to Huttner.

Highly Ambitious

Baete is also credited, along with Perlet, of steering Allianz through the global financial crisis. Since he joined the company in 2008, the insurer’s solvency ratio, a measure of its ability to absorb losses, improved from 150 percent in the first quarter of 2008 to 186 percent in the second quarter of this year.

“He knows every nook and cranny of Allianz’s reporting,” said Christian Muschick, an analyst at Silvia Quandt Research in Frankfurt. “He is painstakingly prepared, highly motivated and highly ambitious. He strives to stay ahead of the pack.”

Allianz reiterated its full-year operating profit target of 7.7 billion euros to 8.7 billion euros on Aug. 3, after second-quarter earnings climbed more than analysts estimated to 1.23 billion euros from 1 billion euros a year earlier. Allianz has advanced 29 percent this year in Frankfurt trading, compared with a 23 percent gain in the 26-company Bloomberg Europe 500 Insurance Index.

Baete was born in Bensberg, 14 kilometers east of the Rhine river, and studied business administration at the University of Cologne before graduating at Leonard Stern School of Business in New York in 1993 with an MBA. After joining McKinsey in New York, he transferred to the consultancy’s German unit in 1995.

Facing Competition

Baete, who spent most of his career at McKinsey, where he was in charge of the European insurance and asset management sector before he left, is switching jobs with Dieter Wemmer, 55, at Allianz, who joined the insurer this year from Zurich Insurance Group AG.

A keen horse-rider, Baete may face competition for the CEO post from the head of Allianz’s German operations, Markus Riess, said Seidl at Sanford Bernstein. Riess, 46, another former McKinsey consultant, has more experience with the sales force and the asset management business, he said.

“While Baete seems to be heading for the CEO post at Allianz, the die hasn’t been cast yet,” he said. “Riess is also among the contenders, albeit he has the Herculean task of getting the German business back in shape.”

Cost Control

Diekmann, who became CEO in 2003 after starting as the assistant to the head of the insurer’s Hamburg regional office in 1988, comes to the end of his current contract in 2014, according to Allianz’s website.

Should Baete beat his rivals to the top job, one of his priorities will be to control costs at a company that straddles auto insurance in Germany to Pacific Investment Management Co., the world’s second-biggest asset management business after BlackRock Inc.

Costs as measured by the expense ratio at Allianz’s property and casualty insurance unit, typically the biggest contributor to profit, rose to 28 percent in the three months ending June 30 from 26.1 percent in the first quarter of 2008.

That trend should be possible to reverse, according to Baete, who said on an Aug. 3 analyst call that sales growth will help give Allianz “some scale effect on the admin side.”

“I’ve worked across many industries and this is the one that has the worst productivity,” Baete said at a conference organized by Standard & Poor’s in Munich in June 2009. “If you go into operating processes you still find the 50s in terms of operating model design. For many investors that’s intolerable.”

Staking Claim

While Baete and Gary Bhojwani, who heads the U.S. insurance business, are the only Allianz board members under 50, he has yet to leave his mark on the company, said Becker of Merck Finck.

“What Baete lacks so far is a unique personal achievement at Allianz that singles him out among the other board members and therefore the race for the top spot is not decided yet,” he said. “Now he has gotten the chance to make his claim.”

The job on the road gang, which Baete’s parents thought he would give up after three days, suggest he won’t lack for effort.

“It was my worst job ever,” Baete wrote in a column for Handelsblatt newspaper in January 2010. “But, I kept going and I was able to buy my moped in the end.”

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