Second-quarter net income at Munich-based Allianz SE soared 83 percent to 2 billion euros from a year-ago, boosted by profits generated from the company’s life and asset management segments, the company reported Friday.
Revenue rose 2 percent to 30 billion euros, the global life, health and property-casualty insurer also reported. A euro is worth $1.18 as of today.
In a low-interest-rate environment, higher profits are coming courtesy of capital-efficient products such as variable annuities without income guarantees, hybrid variable annuities and fixed indexed annuities, company executives said.
Second-quarter life and health segment operating profits grew by 12 percent to 1.1 billion euros over the year-ago period, the company said.
Hybrid variable annuities, also known as indexed annuities, stick with index allocations, fewer subaccounts, no living benefits and no lifetime income riders. These products commit investors to shorter terms and expose policyholders to losses beyond a protection buffer offered by the insurer.
“The life and health business segment has experienced ample growth in this difficult environment,” said CFO Dieter Wemmer, in a news release.
U.S. Sales Expected to Rebound
Capital-efficient products require less capital than traditional life and annuity products.
Even if sales dip, as they did in the U.S. in the second quarter, the company can still generate higher profits.
Second-quarter new business life and health premium in the U.S. shrank by 23 percent to 2.6 billion euros from the year-ago period, but lower sales were offset by higher sales in Asia, Belgium, Luxemburg and other parts of Europe, the company said.
In contrast to capital-efficient products, traditional variable annuities come with lifetime income guarantees.
But many insurers have found annuities with lifetime income riders difficult and expensive to honor in a low-interest-rate market.
Strong second-quarter operating performance “gives me really a lot of confidence that we are clearly hitting our strategic targets in the life business,” Wemmer told analysts in a conference call.
In the U.S., Allianz Life Insurance Co. of North America, Allianz SE’s Minneapolis-based subsidiary, has found success in selling capital-efficient annuities.
The company expects U.S. sales to rebound as managers adjust product lines to meet the requirements of the Department of Labor’s fiduciary rule.
There’s plenty of “upside for the quarters to come,” Wemmer said.
Asset Manager PIMCO Back on Track
Second-quarter operating profit at Pacific Investment Management, or Pimco, one of two asset management companies owned by Allianz SE, rose 17.2 percent to 450 million euros over the year-ago quarter, Allianz said.
Revenues rose 8 percent to nearly 1.1 billion euros compared with a year ago, Allianz said.
“PIMCO has become a performance engine again,” said Wemmer.
Pimco, based in Newport Beach, Calif., struggled after the 2014 departure of co-founder Bill Gross and Gross’ heir apparent Mohamed El-Erian.
Investors pulled money out of the company after the star bond managers left, but the asset manager’s difficulties seem to be behind it.
With strong profit growth and lower expenses, “we are really in good shape,” said Wemmer.
Allianz SE’s other investment manager, Allianz Global Investors, saw second-quarter operating profits dip 0.4 percent to 138 million euros over the year-ago period, the company said.