Allianz Aims to Tilt Away From Annuity Guarantees

Allianz announced Friday that it has arranged to reinsure more than $34 billion in U.S. fixed annuities, and that it hopes to reduce the percentage of reserves supporting guaranteed savings and annuity products.

Executives from the Munich-based insurer talked about the moves at an event for investors. The event was streamed live on the web, and a recording is available here.

Oliver Bäte, the CEO of Allianz, told investors that the company has been happy with earnings at its Allianz Life Insurance Co, of North America unit but unhappy with the large amount of capital needed to support guarantees for non-variable indexed annuities.

“This is the business in Allianz that consumes most of the absolute amount of capital, more than any other, so we knew we had to do something,” Bäte said.

The Reinsurance Arrangement

Resolution Life plans to reinsure $26 billion in Allianz Life annuities and pass on responsibility for $12 billion of the annuities to Talcott Resolution Life Insurance Co., an affiliate of Sixth Street, through the retrocession agreement.

Talcott expects to end up reinsuring about $20 billion in Allianz Life fixed annuities, through a direct reinsurance arrangement and the Resolution Life retrocession agreement.

A reinsurer provides insurance for an insurer. A retrocessionaire provides insurance for a reinsurer.

Including the Allianz Life deal, Resolution Life will have about $90 billion in assets under management, and Talcott Resolution and affiliates will have about $111 billion in insurance and annuity liabilities and surplus under management, according to Allianz.

Allianz said the reinsurance deal should free up $4.1 billion in value and improve a key European financial strength measure, the company´s Solvency II ratio.

The company is emphasizing that it will continue to administer and service the contracts involved in the arrangement, and that its PIMCO and Allianz Global Investors units will manage the assets supporting the annuities.

“There will be no changes to policy servicing, call center management, claims payments, statement generation and delivery, distribution partner experience, and digital self-service,” the company said.

The Medium Term

Allianz executives said at their investor event that they want to see “continuous reduction of business” for guaranteed savings and annuity products, with a compound annual reduction rate of about 3% per year.

Preferred lines of business include protection and health products and capital-light products, the company said.

Bäte talked at the event about wanting to sell more asset management services, and about opportunities to work with Talcott and Resolution Life to sell annuities that require relatively low levels of capital.

“Think about variable annuities,” he said. “Think about creating new products to distribute leveraging private capital and its capital efficiency in a systematic way.”

Oliver Bäte (Photo: Allianz)