Allianz SE is in advanced talks to transfer a block of Swiss life insurance assets to Resolution Life, people with knowledge of the matter said, a move that could free up regulatory capital as Europe’s largest insurer prepares for the financial hit from U.S. probes into its asset management arm.

Resolution and Allianz have been working with advisers on a deal that could be announced as early as this week pending regulatory approval, the people said, asking not to be identified because the information is private.

The transaction would affect roughly $6 billion in liabilities that would be ceded to Resolution Life, which is run by former GE Insurance executive Clive Cowdery, they said.

Allianz would remain legally responsible for the policies, though Bermuda-based Resolution Life — which focuses on the acquisition and management of portfolios of life insurance policies — would manage the books going forward. Negotiations are ongoing, and talks could still fall apart, the people said.

Spokesmen for Allianz and Resolution Life declined to comment.

The transaction, which is similar to a swap agreement, comes as Chief Executive Officer Oliver Baete is preparing for a possibly “material” hit to Allianz’s earnings from lawsuits and probes over the implosion of a group of hedge funds. The insurer is already working on a similar, but much larger reinsurance transaction in the U.S., Bloomberg reported last week.

Such deals are common in the U.S. and are also growing in Europe. In Switzerland, it would be a relative novelty and could pave the way for other insurers to free up capital by transferring books from their balance sheet to so-called consolidators, the people said.

Allianz has warned that its future earnings may be impacted after the U.S. Department of Justice started an investigation into a group of its hedge funds that imploded in the market turmoil caused by the pandemic. The vehicles were offered by Allianz Global Investors, part of the insurer’s asset management business, and are already at the center of multiple lawsuits as well as an investigation by the Securities and Exchange Commission.

The German insurer has said that it cannot reliably estimate the amount of any possible resolution including potential fines and has therefore not yet recognized any provisions.

Baete has vowed to restore profit growth this year, after the pandemic dealt the company its first drop in nine years. Just days after disclosing the U.S. probe in August, Allianz raised its outlook for the year to reassure investors.

Photograph: An illuminated Allianz SE logo on the company’s offices at dawn in the La Defense business district in Paris, France, on Thursday, Jan. 21, 2021. Photo credit: Benjamin Girette/Bloomberg.

Topics USA Allianz