Allianz will seek more reinsurance deals to lighten capital profile, could reach beyond US

Allianz will continue to pursue reinsurance deals like the  $35 billion deal on its US indexed annuity portfolio announced Friday (December 03) as it presses onwards towards a capital-light model, its chief executive officer (CEO) Oliver Bäte told investors and analysts.

“This is the beginning of a journey” in a “partnership we’d like to extend.”  Variable annuities and other unspecified products could all be on the table.

"We will continue to look for opportunities," Bäte said. "And it will not stop at the US border."

Comments follow announcement that Allianz had reinsured a massive $35 billion indexed annuity portfolio for its US life unit.

The deal represents "a shift in strategy, not a transaction," Bäte said.

The deal will unlock €3.6 billion in capital, equal to roughly 9 percentage points on the Solvency II ratio, rendering a notable 6pps boost to ROE. And after a one-off hit to earnings, profitability would largely hold as the Allianz asset management units get in on the business, officials claimed.

The deal comes as Allianz sets a strategic goal of refocusing growth in the life and health sector on protection, unit-linked and capital-light products in ways that can still draw synergies with asset management operations at PIMCO and Allianz Global Investors, management said.

Conditions have been better in the US for such a deal than in Europe, Bäte admitted. "It is very clear where the value is and how to partner to develop it," he said. "Other markets [are] not so developed, more of a sell market than a reinsurance market."

The US deal on indexed annuities was almost two years in the making on account of complexities in risk management, Bäte indicated. The deal is deeply layered and structured so that "even under severe shocks, both parties understand what is going to happen."

Resolution Re sounds well positioned to pick up more of the Allianz positioning moving forward, drawing repeat mention from Bäte for its role both in the recent US deal as well as a deal in recent weeks in Switzerland.

An outright asset disposal was not considered. "You don't sell something that has been as good as it is, but it has been very capital intensive consuming the highest amount of capital in the Allianz group, CEO Bäte said.