Allianz Net Income Soars 83 Percent

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.


Allianz Net Income Soars 83 Percent

Treasuries Look Like Insurance for a Crash

Investors who expect big losses in stocks accept smaller ones on government bonds.

U.S. Treasuries offer historically low yields, with negative returns after taking taxes and inflation into account. Investors wouldn’t willingly invest to earn negative returns, so why buy Treasuries? These should be considered purchases of insurance that guard against a meltdown or disastrous economic outcome. They hardly qualify as investments.

Prevailing low interest rates are a mystery to many analysts, because it is hard to fathom why investors would buy U.S. Treasuries at today’s very unattractive yields. Interest on Treasuries is taxable and most owners are in the highest federal tax bracket. So a 10-year Treasury yielding 2.3 percent provides a net return of about 1.4 percent after tax. The Fed’s inflation target is 2 percent and prevailing measures of inflation range between 1.5 percent and 2 percent and are possibly, or likely, headed higher. So, after adjusting for taxes and inflation, an investor has almost certainly locked in a negative rate of return over a 10-year horizon.

It isn’t helpful to note that sovereign yields are even lower in Europe and Japan, so U.S. government bonds are highly attractive in comparison. It only deepens the mystery that foreign investors would accept even more outrageously low or more negative bond returns. Something is very much amiss. Given the negative yields on sovereign bonds overseas, it isn’t surprising that institutional European investors who shift from bonds into bank deposits to avoid losing money are charged a fee on their deposits, so they lose money either way.

Why would any investor acquire an asset that guarantees they will lose money? At the simplest level, rates are so low because the central banks want them there and have flooded the market with liquidity to achieve this end. But this explanation isn’t fully satisfactory. No one forces investors to buy. They could refuse, which would force rates higher. So, investors ultimately accept these lower yields.

Some investors find all kinds of reasons to rationalize their decision. Some point to the fact that U.S. interest rates are considerably higher than sovereign bonds issued in Europe or Japan. (My mother’s response to this would have been: If other people jump off a cliff, why should you follow?) And those foreign investors are probably unhappy with their investment decision, since they have suffered much larger currency losses recently than they have gained in incremental yield. Some reverse the argument and suggest bond yields are low because the economy is performing very poorly, so the yields are appropriate returns for the prevailing economic environment. But this view implicitly accepts the market yield as appropriate and rationalizes it, even when the data doesn’t support the argument. Instead, they ignore all the macro data, including falling unemployment and rising corporate profits, or argue it fails to capture the poor state of the economy.

The real answer may be that Treasuries are an attractive investment choice when the alternative investment is at risk of even greater losses. I am reminded of some testimony given before Congress by an investor during the 1930s in response to a question why this individual bought and kept his Treasury securities after they had matured. He explained that it was the safest place he could think of to keep his money! At the time, banks were failing left and right, so this investment choice makes sense in that context. And today’s context is analogous.

Investors who think the stock market is overvalued and want a safe investment might sensibly choose to hold Treasuries since they expect to lose less money on Treasuries than in equities. (An alternative view that stocks are fairly valued is here). The losses investors expect to take on their Treasury holdings are, in effect, the premiums they are paying to own investments that will preserve as much capital as possible in an investment environment that they fear will suffer losses.

Indeed, there are a number of well-known money managers who have explicitly and publicly made the decision to reduce equity exposure or even to short parts of the equity market. They commonly point to the Schiller CAPE, or cyclically adjusted price/earnings, as justification for avoiding equities, even though, for many years, that tool has been dreadfully wrong in valuing the market or suggesting entry points. This behavior has contributed to very poor portfolio performance and large withdrawals from these funds. That so many professionals and individuals engage in this practice is a clear indication that the equity rally since 2009 may be the most hated ever, which is precisely why the market has difficulty going down. Any time it does decline, some investors sitting on cash take the opportunity to get in.

Economists normally try to use the yield curve to calculate all kinds of useful information embedded in the data, such as term premiums and expectations for future inflation. In this environment, the embedded negative returns may be more useful in estimating the size of the insurance premium investors are paying to protect their net worth. And in suggesting that investors fear stocks, what better contrary indicator can there be to imply that the equity market still has more upside?

Insurance industry seeks higher tax exemptions in Budget

Mumbai: On the heels of demonetisation, the insurance industry is seeking higher tax exemptions, focus on e-payment and compulsory home insurance in the upcoming Union Budget that will help in increasing insurance penetration in India.

“We expect the Budget to spur consumption with a lower tax regime and higher tax-free slabs coupled with higher infrastructure spends,” Edelweiss Tokio Life Insurance
Managing Director and CEO Deepak Mittal told PTI here.

He said in the life insurance space, the industry is expecting the Budget to create a level playing field for annuities, that will result in pension and retirement savings.

“…an annuity plan provides lifetime guaranteed pay-out, irrespective of how long one survives and will not decrease even if the interest rate falls. The government should come out with long-dated bonds for institutional investors (primarily annuity providers), which has the added benefit of helping infrastructure projects by raising funds,” he added.

Echoing a similar view, Max Life Insurance Executive Vice CMD Rajesh Sud said the government is likely to announce simplification in Income Tax laws in line with the suggestions of Income Tax Simplification Committee, which will make Indian tax laws more competitive with respect to the global economies.

“It would be interesting how the government deals with delayed Goods and Services Tax, which was scheduled for April 1, 2017. There is also a need for streamlining tax saving vehicles, especially for elderly given the expected scenario of falling interest rates. This Budget should move annuity out of tax bracket to provide relief to almost 10 crore senior citizens of India,” he said.

To help households create a portfolio for their long-term needs, he said, it is recommended that the Budget should create a separate income tax limit for the
deductibility of life insurance premium, which should be over and above the existing limit.

Max Bupa Health Insurance MD and CEO Ashish Mehrotra said last year’s Budget reflected the government’s agenda to accelerate the momentum in the health insurance space and make quality health care affordable and accessible to all sections of the society.

“This year we expect further incentives in the sector to encourage people to insure themselves for longer period like tax exemption each year based on number of years covered.

“Alternatively, tax exemption can be multiplied by number of years of coverage. For specialised health insurance firms, period of carry forward of business loss and depreciation should be extended to at least 12 years,” Mehrotra said.

It would also be a welcome move if the government can provide relief by removing the 15 per cent service tax on health insurance premium and further increase the income tax deduction limit for individuals and families from Rs 25,000 to Rs 50,000, he said.

Future Generali India Insurance Company MD and CEO K G Krishnamoorthy Rao said, the sector expects key resolutions from the Union Budget for 2017-18, for making medical devices affordable which will lighten the burden on customers’ pocket.

Further, he said, “higher tax exemption on health insurance to individual tax payers and also waiver of service tax on health insurance premium will be welcome move, as these will make the policies more affordable for public at large.”

The government can do much in changing this perception and help increase the penetration in India, Tata AIG General insurance Company President, Insurance, M Ravichandran said.

“With the implementation of GST, the economy will witness positive strides. It will help create uniformity in the tax structure pan-India by removing several taxes and seamless tax credits, though with the added cost of compliances. For the insurance sector, we hope to be in the lower tax rate (that is 5 per cent or 12 percent) considering the low market penetration and the large middle class component with plenty of available potential,” he opined.

Further, he said, given the rising cost of medical expenditures, it would be even more beneficial if the government could provide further tax benefits.
There is a need for the government to create awareness about the importance of insuring homes, he said.

“In the recent years, India has witnessed an alarming trend with regard to natural calamities…results in mammoth loss not only to life but property. The government’s role here, and critically, should be to help increase home insurance penetration, as awareness levels are still low,” he added.

Why Life Insurance Is Essential For Retirement Planning

Many people do not view life insurance as an essential and vital part of a retirement income plan. They see life insurance primarily as a way to protect families from the early loss of a breadwinner during the working years. However, life insurance has the potential to be so much more if properly utilized in a comprehensive retirement income plan. According to Jen Sias-Lyke, State Farm® Insurance Agent, “Life insurance plays an important role in any financial plan. It helps loved ones recover from financial risks and unexpected costs, increasing their chances of reaching long-term goals and achieving dreams. Thinking about financial protection and retirement can seem overwhelming, but as your life changes so does your financial situation.” Unfortunately, many people do not fully understand nor appreciate the value and benefits that life insurance can represent as part of a retirement plan.  Having the correct type of life insurance and the appropriate amount of life insurance coverage in retirement will accomplish multiple jobs. It can help protect your income, provide tax-free cash flow, help manage taxes, provide peace of mind to families, and even improve the total returns in a portfolio.  Here are a few strategic ways to utilize life insurance as part of a comprehensive retirement plan:

Protect Your Income in Retirement. According to James J. Meehan, MSM, Managing Partner of 1847Financial, “Life insurance needs to be the foundation of any solid retirement plan if your family is depending upon your retirement income. You can’t invest your way out of an untimely death.” When one spouse passes away in retirement, the surviving spouse often struggles to meet their income needs. While expenses might be lower, the drop in expenses rarely offsets the drop in income. At a minimum, one of the two Social Security benefits the couple was receiving will go away. So for many couples, life insurance can be used to ensure that there is enough money to replace any lost Social Security or other retirement income. In this way, the surviving spouse is able to maintain his or her current standard of living throughout retirement.

Shutterstock Photo of life insurance and other strategies that fit into a retirement plan.

Keep Your Retirement Savings on Track. According to retirement income expert Curtis V. Cloke, CLTC, LUTCF, RICP®, “In the 10 years leading up to retirement, many couples find themselves playing catch-up on their retirement savings. During this period, if one spouse dies, the surviving spouse could end up being severely short on retirement savings.” For this reason, Curtis recommends buying a 10- to 15-year term life insurance policy on both spouses prior to retirement in order to protect the retirement savings plan. Cloke notes that the premiums for this term policy could be very inexpensive, so it will not place a huge financial burden on the couple. However, he also notes that you might want to get a policy that can be converted into a permanent policy in case a future life insurance need arises. A convertible term life insurance policy will help protect your insurability in case health changes.

Improve Your Investment Asset Allocation and Returns. With interest rates close to historical lows, bonds and CDs are not an attractive investment for many retirees today. However, most people still need some safe investments and assets in their retirement income portfolio. Tom Hegna, CLU®, ChFC®, CASL®, a professional retirement planning speaker, author, and host of the popular PBS TV special “Don’t Worry, Retire Happy!”, suggests positioning life insurance as a substitute for bonds in a retirement income portfolio. “Right now bonds have very little upside. They are only paying in the 1 to 3 percent range. Yet the risk of holding bonds is very high. If interest rates rise, the downside risk to bonds could be 20-30 percent or more.” Hegna recommends that “retirees should consider a whole life policy as a bond substitute for some or all of their bond portfolios. The life insurance policy can provide bond-like returns of 3 to 5 percent without the interest rate risk of a bond.”

Shutterstock – Taxes can play a big part of retirement planning but life insurance can help.

Manage Your Taxes. Russ DeLibero, CFP®, ChFC®, CLU®, who also holds a PhD in Financial and Retirement Planning, notes that there are tremendous uses of life insurance in a retirement income plan because of the preferential tax treatment that life insurance receives. According to Dr. DeLibero, “When properly structured, life insurance can provide tax-deferred growth, tax-free cash flow, and a tax-free death benefit. The tax-preferential treatment provided to life insurance allows an individual to have greater flexibility over which dollars to use during retirement, and depending on the type of life insurance, it can also provide a non-correlated asset to the portfolio providing additional diversification.” With tax rates constantly changing, life insurance can also function as a hedge against future tax rate hikes. “The tax-preferential treatment of life insurance can be especially advantageous for individuals in a higher income tax bracket or as a hedge against a rising tax environment. As taxation rises, tax-free cash flow becomes more advantageous.” Tapping into cash value income tax free can be a great way to supplement a retirement income plan and, at the same time, help manage taxes.

Make sure to investigate the ways life insurance could fit into your retirement plan. Not everyone’s needs are the same. Some might benefit from term life insurance while others might benefit more from permanent life insurance. Still others might not have a significant need for additional insurance. There are those who already have insurance who may be underinsured and are leaving much risk on the table by not having the proper amount or type of life insurance. For those considering getting life insurance, sooner is better than later.  Unfortunately, many people ignore the need for life insurance until some mortality event suddenly occurs. Jen Sias-Lyke states that, “Key life events such as marriage, moving or buying a home, having a child, changing jobs, and retiring could signal the need for changes to a financial plan. Life insurance should be an important piece of that conversation.” Take the challenge seriously, because having the right plan and the appropriate life insurance policy can improve your retirement. Start the process today by doing your due diligence. Determine your specific life insurance needs, get referrals for a quality life insurance specialist, and review the companies offering life insurance policies before you purchase. Remember, life insurance can provide more than just protection during the working years. It can continue to provide protection and benefits throughout retirement.

Tips for Adding a Teenage Driver to Your Auto Insurance

The financial shock of adding a teenager to a family auto insurancepolicy is getting less shocking — at least somewhat.

An annual analysis by, a rate comparison site, found that adding a teenager still increased annual premiums substantially, but the magnitude of the increase has been falling over the past few years.

Adding a single teenager to a policy caused annual premiums to increase an average of 78 percent, or $671. But rate increases have been decreasing since 2013, when the average increase was 85 percent.

Laura Adams, senior insurance analyst with insuranceQuotes, said that factors in the trend may include safer automobile technology, a dip in the number of teenagers getting driver’s licenses and the continued impact of “graduated” driving programs, which place restrictions on new drivers until they gain more experience on the road.

But the impact of adding teenagers to a policy is still a jolt to families, especially those adding boys. Putting a male teenager on your insurance policy increased rates an average of 89 percent, compared with 66 percent for a female teenager, the analysis found.

Ms. Adams said premiums increased when a teenager was added because, statistically, younger drivers — particularly boys — have more accidents than older, more experienced drivers, and file more insurance claims.

Nearly 1,900 drivers aged 15 to 20 died in car crashes in 2015, according to the National Highway Traffic Safety Administration, up 9 percent from 2014.

Motor vehicle crashes are the leading cause of death among teenagers, according to the Centers for Disease Control and Prevention.

As with most insurance costs, the impact of adding a teenager varies by state. Adding a teenager in Rhode Island bumps up premiums by more than 150 percent, while parents in Hawaii get about an 8 percent increase.

For the analysis, hired Quadrant Information Services, an insurance data firm, to calculate the price increase of adding a driver aged 16 to 19 to a family’s auto insurance policy. The averages are based on a hypothetical couple — a man and a woman, both 45 years old, married and employed — who each drive 12,000 miles each year and have good credit and driving records. The policy tested included $100,000 for injury liability, $300,000 for all injuries, a $500 deductible on collision and comprehensive coverage, and uninsured motorist coverage.

Here are some questions and answers about teenagers and auto insurance:

How can I reduce the cost of having a teenage driver on my policy?

Kathy Bernstein Harris, senior manager for teenage driving initiatives at the National Safety Council, a nonprofit, said that some insurers offered discounts for students who get good grades (even though it’s not necessarily clear that being a good student correlates with safer driving). Discounts are also often available for new drivers who take driver’s education classes.

Ms. Harris said the best way to reduce claims and hold costs down — and keep your child safe — was to set rules and spend time driving with teenagers and coaching them along, even after they pass their driver’s license tests. “Just getting a piece of plastic doesn’t mean they are totally prepared for the open road,” she said. “The first year of independent driving is the riskiest.”

Many state programs set restrictions on teenage drivers, such as curfews for night driving and limiting the number of other people, particularly other teenagers, who can ride in the car with them. Ms. Harris urges parents to follow such rules. “With every teen passenger you put in the car,” she said, the risk of a crash increases.

The council’s DriveitHome website offers resources for parents and teenage drivers, including interactive safety tests.

Are some cars safer than others for teenagers to drive?

The Insurance Institute for Highway Safety each year publishes a list of safe, affordable cars for teenagers. In general, larger, heavier vehicles are best.

Ms. Harris suggests that parents not buy a new car specifically for their new teenage driver — or, if they do, that they make it clear that the car is the family’s car, rather than the teenage driver’s personal vehicle. By making the car a “family” car, she said, parents can better set rules for its use and talk about where their child is headed and who is expected to go along.

Also, she advises getting teenagers involved in researching the safety and price of a new car, as a way of teaching them lessons about budgeting, and emphasizing the need for safe driving habits.

Are there apps that can help reduce distracted driving?

Technology is emerging that can disable texting and social media on cellphones while the car is in motion. One system, Cellcontrol, recently was favorably reviewed by Consumer Reports.

The organization also offers other tips for reducing distracted driving and increasing safety for teenage drivers on its website.