Who in the Allianz Group knew what and when? Did the internal control system of the largest German insurer work? Why did the group announce so late that the demands of major investors could noticeably affect the results in 2021?
These are some of the questions that the financial regulator Bafin asks in connection with a major problem facing Allianz in the United States. Large investors, including the pension funds of teachers in the US state of Arkansas and the subway employees in New York, had invested large sums in so-called Structured Alpha Funds from Allianz Global Investors (AGI). The funds should actually be particularly crisis-proof. But the high price fluctuations on the stock exchanges, which occurred as a result of the corona pandemic in March 2020, brought the funds to their knees. AGI even had to close two of them.
Large investors claim that the Allianz subsidiary did not adhere to the agreed rules for the investment policy of the funds. They put their damage at six billion dollars, about five billion euros, and have sued Allianz for this sum.
Until recently, that didn’t bother the global financial group much. Even the fact that the US Securities and Exchange Commission looked at the case could not worry Allianz boss Oliver Bäte. But then, in early August 2021, it was announced that the US Department of Justice was investigating the alliance in its role as the highest law enforcement agency. This was the first time the Allianz leadership had to admit that the demands could have “significant effects on future financial results” – not to mention a possible fine by the Justice Department.
If Allianz has to pay billions to investors and the state, this could jeopardize the previously undisputed role of CEO Bäte at the top of the company. To do this, however, large investors would have to oppose him – so far there are no signs of this.
Now the German financial regulator is dealing with the case and has started an investigation. Industry experts confirmed a corresponding report by the Reuters news agency.
The Bafin does not comment on individual companies or investigations that may take place. The alliance weighs it down. “We are in regular contact with the Bafin on all issues that affect the alliance,” said a spokeswoman. “That includes the Structured Alpha Funds. But there were no new developments.” In the current case, the Bafin is primarily investigating whether the internal control system at Allianz has worked. Did all managers behave as they should, did they comply with the so-called compliance rules? The question of whether fraud may have been involved in the AGI’s investment decisions on Structured Alpha in the crucial days is also of interest to the supervisory authority.
It doesn’t help the group that there have been a number of incidents in the recent past where Allianz’s internal control system has not worked as it should. A court in Australia has just sentenced Allianz to pay 0.9 million euros for allegedly misleading customers in selling travel insurance between 2016 and 2018. In Bermuda, the supervisory authority has imposed a fine of 1.4 million euros on Allianz Life Bermuda for violating regulations on money laundering and terrorist financing.
Who knew what when?
In the current investigation by Allianz SE, the supervisory authorities should also be very interested in who knew what and when. After all, a possible burden in the mid single-digit billion range is no small matter even for the largest German insurance company.
The Bafin is also the market regulator for securities trading. She has to ask herself whether Allianz has complied with all publication obligations in good time. In such a situation, the supervisory authority also routinely examines whether there could be any suspicion of market manipulation – i.e. how many shares were traded by whom on the critical days. There is probably no such suspicion so far.
In addition to claims from pension funds and other large investors, the insurer also has claims from smaller investors. Several US law firms are collecting claims from Allianz shareholders who want to sue because, in their opinion, the group admitted the possible consequences of the AGI problems on the result too late. As a result, the share price fell sharply on August 2, 2021.
Reed Kathrein, lawyer at Hagens Berman, has just announced an investigation into Allianz’s behavior, and numerous other law firms are doing the same. “We are concentrating on investor losses and on whether Allianz lied about risk management in the structured alpha funds,” said Kathrein.