Allianz launches Variable Annuities in Europe

The aging of the population in the western industrialized nations, with a growing number of senior clients, poses new challenges for companies. "As an international financial service provider, we make the most of our worldwide subsidiaries' knowledge and experience in developing products and services," said Joachim Faber, a member of the Allianz SE board, at a press conference in Frankfurt.

That’s why Allianz recently founded a Global Life unit to further develop its international business in retirement products. Led by that unit, experts from Allianz Leben and Allianz Global Investors came up with Invest4Life – a product whose risks are hedged by specialists from Allianz Investment Management and Dresdner Bank. For the design, they were able to draw on experience with similar products from the USA.

The target group age 55 and over is becoming increasingly important to Allianz in Germany. And not just because the number of seniors is steadily growing, or because Allianz already has many clients in this age group.

"From surveys, we know their special wants and needs, and have already responded with corresponding product concepts across all our divisional boundaries," explained Maximilian Zimmerer, CEO of Allianz Leben. Clients approaching retirement, he said, have special characteristics. They want to stay active and independent as long as possible, and have their wants met. They’re willing to support their children and grandchildren financially. They’re security oriented, but also want to take advantage of investment opportunities if the risk is within limits.

"Allianz Invest4Life is a superb addition to our range of products for our Generation 55plus clients. It’s a lifetime investment with four outstanding advantages," said the Allianz Leben CEO when explaining the product's name. For one thing, clients can still participate in the growth of the world economy by making a one-time payment, through the product’s built-in fund investment in stocks. That gives them a chance to see their investment appreciate substantially (advantage: opportunity).

In addition, insured individuals get a lifetime annuity as a benefit. The annuity can never decrease in value, but can increase as fund assets grow. The new, higher annuity level is fixed and is again guaranteed for life, even if the fund takes a downturn (advantage: security).

Third: the product fits ideally into clients' life plans, because they can draw on the annuity either now, or after a waiting period. Also, clients can draw on the capital in the fund even during the annuity phase, for example for a major purchase or travel (advantage: flexibility). In the event of death, the heirs inherit the value of the fund.

The fourth advantage is the tax factor: only the lowest income component of the annuity is taxed, and benefits upon death are subject only to inheritance tax. With these product features, it is now possible to address what retirement-age clients want with a single financial product. "In this sense," said Zimmerer, "Invest4Life really is unique in the German market."

While the savings phase has traditionally been the focus of the Asset Management business, concepts which address the payout phase are becoming more and more important because of the demographic shift. Capital market-based solutions for seniors have hitherto limited themselves to fund-based payout plans that did not cover biometric risks, explained Thomas Wiesemann, spokesman for the management of Allianz Global Investors in Germany.

Wiesemann emphasized the innovative aspect of the new product from the asset management viewpoint: "Allianz Invest4Life is the first product to combine fund-based capital market opportunities with a guaranteed lifetime annuity. In other words: if the fund performs well, the annuity goes up. After each increase, the new annuity level is guaranteed, and it remains there even if the markets turn weaker later on."

The payment commitments are based on the performance of the capital market, where clients can also participate depending on their own risk appetites. Clients can choose between a growth-oriented investment fund and a balanced investment fund. Both are managed by Allianz Global Investors. With "Allianz Strategy 75", the name used for the growth-oriented variant, three-quarters of the assets are invested in global stocks, and one-quarter in euro annuities. With "Allianz Strategy 50", the stocks and annuities are evenly balanced.

According to Wiesemann, the introduction of the variable annuity concept in Germany also makes an important contribution: "With this expansion of our retirement products, which permit innovative solutions during the payout phase, even more individuals can take advantage of the capital market’s opportunities for additional pension income during retirement."

With Allianz Invest4Life, the policyholder can decide to take annuity payments immediately, or wait as much as ten years. The waiting period can be extended once, by up to five years. To increase the annuity – which then remains locked in for the duration – all that's needed is for the fund to perform positively after costs and risk premiums.

Conversely, a decline in fund value does not affect the current annuity. But before the next annuity increase, any decreases in value must be made up. If the client needs cash, he can draw on the existing value of the fund. But withdrawals will also cause a decrease in the annuity. An important point – the guarantees cover only the lifetime annuity, not the fund assets.

"The new generation of products meets the special expectations of our retirement-age clients, because they can secure a guaranteed lifetime income, opportunities for gains, and flexibility," said Joachim Faber. Most importantly, the client no longer needs to worry about investments, and can leave this up to the experts. Yet, at the same time, the product is very transparent. Clients know their annuity, and can watch how their fund assets perform."

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