Germany’s biggest life insurance company, Allianz Leben in Stuttgart, is once again expecting dynamic growth in the provision market. "The demographic challenge will bring about significant changes in savings behavior," commented Gerhard Rupprecht, Chairman of the Board of Management of Allianz Leben at the Financial Press Conference. Long-term savings processes are what were required to secure the standard of living during old age. Rupprecht estimates that German life insurers will derive particular benefit from this development, given that their core competence was providing insurance for lifelong income.

The Chairman of the Board of Management stated that Allianz Leben is starting out from an "outstanding initial position" in the future market for retirement provision. He referred to the fact that the market leader in private and company retirement provision would meet the increasing competition head on from a position of strength. This would shape the approach to competition both within the sector and with the providers of other financial products. The strong brand, the substantial financial strength, the long-term customer relations, the outstanding competence in providing advice, and the broadly-based sales network of an integrated financial services provider were clear competitive advantages.

Allianz Leben achieved record new business during the course of the past year. The company increased the number of new policies by 39 percent to 1.3 million, sales revenues went up by 31 percent to 29.9 billion euros, and new premiums rose by 5.6 percent to 3.7 billion euros. Premium income grew by 4.3 percent at Allianz Leben, almost twice as fast as the market as a whole. A total of 800,000 new customers were acquired by Allianz Leben, and Rupprecht described this as particularly gratifying. A striking fact was that an above-average number of young customers concluded a new policy. As a consequence, the average age of new customers was reduced by 5 years in comparison with 2003, coming down from 35 to 30 years of age.

The demand for private pension insurance policies went up at Allianz Leben once again during the course of 2004. They already account for 82 percent of new business with private customers. According to Rupprecht, this demonstrates "that customers of Allianz Leben are addressing the issue of 'living longer' and are primarily purchasing annuity insurance.

Despite the continuing slide in interest rates – the yield on 10-year German government bonds was only 3.6 percent in 2004 – Allianz Leben almost achieved the high level of the previous year in net investment income, with 6.5 (2003: 6.8) billion euros. A net return of 6.0 (6.5) percent was achieved, again outperforming the sector average of 5.0 percent. The market value of investments held by Allianz Leben grew by 5.5 percent to 117.5 billion euros. At the same time, the valuation reserves rose to net 6.7 (5.0) billion euros or 6.0 percent of investments.

The favorable investment situation allowed the bonus for customers at Allianz Leben to be kept stable at 4.5 percent of the total return. By contrast, the low interest-rate environment prevailing in the market led to a reduction in the average total return to 4.3 percent. Moreover, customers at Allianz Leben benefit from a significant increase in the reserve for premium refunds. The funds available in the reserve for premium refunds amount to 10.2 (9.2) billion euros and these secure future bonuses under the insurance policies. The equity ratio of Allianz Lebensversicherungs-AG grew by 22 points to 260 percent.

The net income was increased by 15 percent to 241.5 (210.0) million euros. On the basis of the strong situation for equity capital, the Board of Management and the Supervisory Board propose to pay this out in full to the shareholders. On April 22, 2005, the Annual General Meeting will consequently decide on a payout amounting to 23 (20) euros per share.

According to Chief Financial Officer Maximilian Zimmerer, the strength of the reserves and the significant financial muscle of Allianz Leben provide outstanding prospects for customers. They ensure "that we will continue to be in a position to offer our customers long-term guarantees in the future and that we will indeed do this." The goal is to generate high real yields over the long term with a manageable investment risk, in order to provide financial security for the standard of living enjoyed by customers during retirement, if they became disabled, or if they needed long-term care.

He continued by saying that the company was reacting to increasing life expectancy in Germany by continuing its investment strategy which is traditionally geared toward security. Given the higher interest environment in the second quarter of 2004, duration extensions were being undertaken in fixed-income investments. Allianz Leben was also strengthening what was already a strong focus on value-oriented values for equities. International investment would also become increasingly important in creating better long-term opportunities for future exploitation of growth markets.

The classic contract between the generations has not simply reached its economic limits in the case of private customers. A "demographic time bomb" is also ticking in lots of German companies, according to Michael Hessling, Member of the Board of Management at Allianz Leben responsible for corporate customers. A growing number of company pensions are matched by a dwindling number of active employees. This was certainly not a scenario purely of the future. "There are already companies with more than company pensioners than active employees." Especially industries which have downsized their workforce in the past years were affected.

Allianz Leben provides companies with numerous solutions to solve their pensions problem. These allow liabilities arising from pension commitments to be financed through reinsurance policies, transferred to a support scheme, or outsourced to the Allianz Dresdner pension fund. Hessling indicated that last year alone, 34 companies had made use of the opportunity to restructure existing pensions through the pension fund. Premiums amounting to 66.8 million euros were paid. In this new but promising segment Allianz has already achieved a marketshare of over 60 percent with its solutions (among the pension funds falling under the auspices of the German Insurance Association).

A further challenge, according to Hessling, was the increasing desire of employers and employees to have more flexible working lives. The new offer of the Allianz pre-retirement pension would enable them to achieve this. Employees would build up assets during the course of their working life to finance their early retirement. The time of early retirement could be flexibly chosen. If parts of the assets or all were left over, the residual assets could then be converted into a company pension.

Overall company retirement pensions would continue to be a growth market. Hessling maintained that the catch-up requirement was enormous compared with other countries. However, employees were increasingly making use of their legal right to defer compensation. Moreover, regulations on company retirement pensions were increasingly being enshrined in collective pay agreements.

The Retirement Income Law (Alterseinküftegesetz, AEG) came into force on January 1, 2005, and Allianz Leben boss Rupprecht is convinced that it will promote the positive development for private and corporate customers over the long term. However, he was not anticipating that the stimulating aspects of the new state subsidy of retirement provision would already exert their full effect on retirement provision in 2005. The lead-time effects meant that there was in any case no expectation that the sector, or Allianz Leben, would be able to repeat the record results of the previous year for new business.

The record for new business set in 2004 provides a particular impetus for premium income in 2005. The full impact of most of the new policies on premium income will mainly be exerted during the current year, since the first payments of almost 600,000 of the 1.3 million new policies were made in December.

Rupprecht also anticipates a "comeback for the Riester pension". He commented that the improvements in the Retirement Income Law had made state subsidized private provision much simpler and hence more attractive. "The supplements mean that the yield cannot be topped by any other form of provision with a comparable level of security," emphasized the Chairman of the Board of Management. Allianz Leben had therefore made the Riester pension the focus of sales for 2005 and was recommending that all sales advisers should first of all address the issue of the Riester pension with customers, and seek to convince them of the advantages.

Initial sales figures provided evidence that this approach was succeeding. The number of new Riester contracts concluded from January to mid-March had risen by almost 180 percent to 8000 contracts by comparison with the equivalent period for the previous year. "Although the volume is still by far too low, the negative trend evident in previous years – which did not have any objective basis – appears to have turned positive," commented Rupprecht.

Since the beginning of the year, Allianz Leben has also offered several new products that have been developed strategically for the provision market following changes in the Retirement Income Law. Following completion of a phase of intensive training for the sales force and office staff on the Retirement Income Law since the beginning of the year, sales were now starting up for the BasisRente, the Allianz Schatzbrief, the Erbschaftspolice, and the Finanzierungsschutzbrief.

Rupprecht is convinced that professional advice for customers – not least because of the numerous new tax details – would provide key leverage for achieving success in competing against other providers. He stressed that companies would only be successful in future if they provided high-quality individual advice geared to customers' needs. Rupprecht finished by emphasizing that Allianz was an integrated financial services provider with a comprehensive product range and traditionally a sophisticated culture of consultancy. As part of this Group, Allianz Leben believed it was extremely well positioned for the future.

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