Zero Play

An Insurer's Survival Guide

andreas lindner allianz
Allianz Life head Andreas Lindner is finding ways to work around zero interest rates.
  • Why it matters

    Why it matters

    Allianz is struggling with the profitability and popularity of its life insurance policies because of the European Central Bank’s decision to keep its interest rate at a historically low zero percent.

  • Facts


    German insurers have lowered guaranteed minimum rates on new life insurance policies in response to the ECB’s low benchmark rates.

    In 2014, Germans cancelled life insurance policies worth a record €14.9 billion ($16.5 billion).

    Like other insurers, Allianz is exposed to the interest rate as it has a sizable chunk of its wealth in government bonds.

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Germans have long viewed life insurance as a safe-haven investment. Many of them have considered Allianz, Germany’s largest insurer, a company they can trust to keep their life insurance investments safe.

But the Munich-based company has a problem: Like most in the business, it’s struggling with the profitability and popularity of its life insurance policies. The key reason is down to the European Central Bank’s decision to keep its interest rate at a historically low zero percent in a move to rekindle growth.

It’s not a problem that’s likely to go away any time soon, either. Andreas Lindner, head of investment strategy at Allianz Life, acnowledhed that his company will be up against a minus-interest-rate environment for the next three to four years.

“Interest rates will remain low for some time to come and that influences the core of our investment strategy,” he said in an interview with Handelsblatt, echoing the warnings of other European insurers. “We’ve positioned ourselves so that we can still produce fair earnings in a lasting low-interest environment.”

Mr. Linder also blamed ongoing political crises for the difficult market environment for German insurers, pointing out that the Spanish government remained uncertain and Italy’s constitutional reform hung in the balance, while it remains to be seen how Britain’s exit from the European Union will dent earnings in the European bloc.

None of this is helping European growth, and “all of this could lead the ECB to adopt more monetary easing,” he said.

“Interest rates will remain low for some time to come and that influences the core of our investment strategy.”

Andreas Lindner, Head of Allianz Life

Earlier in September, the ECB decided to leave interest rates in the bloc unchanged, but kept the door open for more cuts in the months ahead amid scant signs of an economic recovery and sluggish inflation.

It’s not exactly a new problem. Many insurers point out that interest rates have been gradually falling for years. Allianz has been discussing the potential impact of low rates for more than two decades, Mr. Lindner said.

But the challenge has gotten tougher since the financial crisis, which forced central banks around the world to push interest rates to near zero. Eight years ago, Allianz had girded itself to offset the threat to its business, Mr. Lindner said. It’s done so largely by concentrating on investments that maximize its expertise and its large amount of assets under management, amounting to around €700 billion ($781 billion).

Allianz – and other life insurers – are well aware that their business model is under threat. Germans are increasingly cancelling life insurance policies, slashing a record €14.9 billion of policies in 2014. And this trend looks set to continue as interest rates founder globally, sparking Allianz and its peers to race to diversify their business.

Allianz has done better than most in diversifying its business. Gone are investments in safe assets like government bonds, many of which have such low yields that investors are actually paying governments to borrow money. Instead, insurers are looking for alternatives that can generate a bigger bang for the buck.

“We have built up teams for commercial real estate and infrastructure financing … and a team to finance mid-cap firms in the United States, Mr. Lindner said. “For regulatory reasons, banks are increasingly pulling out of these businesses, opening up new investment opportunities for us.” 

There is a danger: Such diversification could expose Allianz to a new set of risky investments. Mr. Lindner argued that his company is still being careful, focusing on business models that are stable in the long term and have limited earnings fluctuations.

“We have the necessary know-how to weigh up the risks of these assets,” he said. “In addition, we are not dependent on refinancing through the capital markets, meaning that the liquidity of these assets doesn’t pose a risk to us.”

The whole company has invested around €5 billion in high-volume commercial real estate over the past four years, plus another €3 billion in infrastructure. Allianz has even bought prime real estate in Manhattan, for example.

“At Allianz Life, we currently have around a fifth of our capital invested in non-tradable options, and we want to boost that to 25 percent over the next five years,” Mr. Lindner said, adding that five years ago just a tenth of the business was invested in such assets.

014 Allianz WTB 2015 March 14 2016


It’s a slow process. Mr. Lindner admitted that Allianz would not be in a position to completely opt of out of government bonds, as around a third of its wealth was held in bonds from industrialized countries.

But the company has managed to limit its exposure to mortgage bonds, where it had 80 percent of its insurance money parked 10 years ago – a ratio that has since slumped to just 23 percent today, reflecting the decline in viability of the investment.

Instead, Allianz has slowly but steadily moved into alternative investments, including corporate bonds and bonds from developing countries, which together now make up around 23 percent of its business.

Shares also traditionally form an important foundation for the company, he said, noting that around 8 percent of its capital was invested in the equity markets. He shrugged off its exposure to market volatility, saying: “Thanks to our financial clout, we can weather even sizeable market swings.”

Around 1.5 percent of the companies’ funds are parked in private equity firms, an avenue of investment he dubbed as “interesting.”

The new lines of investment have yet to make a big impact on overall earnings at the firm

Infrastructure investments are also a growing trend for insurers. The company favors long-term projects, and most of them are outside of Germany. They include Norwegian and Czech gas pipelines, or parking meters in Chicago.

Mr. Lindner said these produced profits of between 5 and 8 percent per year – not bad with interest rates near zero. Renewable energy investments also deliver 5 or 6 percent earnings, while financing mid-caps in the United States delivers as much as 9 percent.

All of this is a slow process. At the moment, he noted, infrastructure projects accounted for just 2 percent of its total investment. “But we want to raise this to five or six percent,” he said.

Given the small amounts, the new lines of investment have yet to make a big impact on overall earnings at the firm, Mr. Lindner admitted. “In contrast to government bonds, non-tradable investments boosted overall returns by one percentage point per year,” he said, adding that this would climb by on average two to three percentage points per year, including share investments.

But Mr. Lindner remained cautious about the economic outlook. And he acknowledged that with every new investment, there’s a new risk on the balance sheet, too.

“One thing is clear, in times of record-low interest rates: There are no risk-free earnings from 6 to 7 percent out there anymore.”

Robert Landgraf is Handelsblatt’s chief correspondent for financial markets. Ankke Rezmer covers the investment fund market for Handelsblatt. To contact the authors: and

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