Allianz starts shift toward capital light model with $35B life reinsurance deal

Allianz SE sees further opportunities to free up capital from its life insurance back book in the U.S., and more broadly, after announcing plans to reinsure $35 billion of U.S. fixed-index annuity liabilities.

Under the transaction, announced Dec. 3, Talcott Resolution Life Insurance Co. and Resolution Life Group Holdings LP's reinsurance unit will reinsure Allianz Life Insurance Co. of North America. Allianz estimates the deal will free up €3.6 billion of capital, equivalent to nine percentage points of the group's solvency ratio. It will also boost the U.S. life unit's return on equity to about 18% from about 12%.

Allianz's asset managers, PIMCO and Allianz Global Investors, will continue to be the main asset managers for the reinsured business.

"It is a shift strategy, not a transaction," CEO Oliver Bäte said at Allianz's capital markets day.

The reinsurance deal marks the beginning of a move toward a capital-light, asset gathering business model for Allianz's U.S. life business and for the company's life business globally, Bäte said.

The company is examining its options for a block of variable annuities in the U.S. and looking beyond that region as well; Bäte noted that Allianz reinsured a portfolio of Swiss legacy individual life products with Resolution Re at the end of September. Back-book reinsurance activity in the U.S. had been more pronounced because the market was competitive and efficient, Bäte said. The market in Europe is not so highly developed, and there tends to be more of a focus on back-book sales rather than reinsurance, he added.

The reinsurance deal with Talcott and Resolution Life is not just about freeing up capital and improving return on equity at Allianz's U.S. life division, but about bringing more business to the group's asset managers. In its capital markets day presentation, Allianz said the deal will boost asset management growth in private credit and other alternative investments and generate recurring fee income of €60 million a year.

Alongside the life reinsurance deal, Allianz announced that it is targeting annual earnings-per-share growth of 5% to 7% and a minimum 13% return on equity between 2022 and 2024. The company estimates it will generate €12 billion of excess capital over the course of its three-year plan.

The company also announced a revised dividend policy Dec. 2. which features a 50% payout ratio or a 5% higher dividend than the previous year's, whichever is greater.