Allianz korea, Suspicion of selling stocks-Customer’s asset ‘ Variable growth fund’ for the corporation tax reduction

Insurance Business Law provides that insurance company keeps an account of variable funds separately from general accounts. The VUL policy holders will get the profit depending on the result of Insurance company's asset management, so the Insurance company have to make the separate accounts for the VUL and manage it with ‘due diligence’. But “Allianz sold the stocks of VUL growth fund in separate accounts not for the customers profit but for the company's tax profit on March 2007 and caused the customers loss of opportunity profit” said PSPD. “ Selling the customers’ asset for the company’s profits and damaging the expected profits of customers are the violation of the due diligence of Insurance Business Law.” (“Moral hazard”)

Actually it was suspicious of Allianz from July 2006. In company’s internal meeting minute, ‘reducing the corporate tax plan’ has been progressed carefully not by staff but by the management board. The company’s ‘project of tax reduction’ is summarized as follows. (Sunday Current Affairs, 2008.4.22)

On July 2006, Mr. A, the Financial Director of Allianz, ordered to estimate & review the several scenarios to minimize the appraisal profit and loss. “Discussion about the uncollected income and appraisal profit & loss in VUL is important. Prepare two scenarios; general case and the case of minimizing the VUL valued loss.”

On Sep. 6th 2006, Allianz had a meeting about tax loss carrying forward utilization plan. At that meeting, ”If Allianz doesn't have a special plan to use TLCF, the company will get a big tax loss because the deficit of expected profit on FY2006 & FY2007 are expired. It is needed to discuss about the tax profit by adjusting the investment portfolio before the TLCF expiration”, and suggested the plan regarded to stock portfolio of separate account, “change the items to covert appraisal profit to disposal profit, and reduce the appraisal profit below 5 billion KRW for adjust tax code till Mar, 2007.”

After the meeting MR. A sent e-mail to major members: “CEO, CFO, CIO approved our strategic tax plan (plan to use TLCF). It's still confidential and do not deliver it without authorization. Specially be careful to adjust the appraisal profit in separate account for preventing the legal, financial problems.”
Through all this progress, Allianz Life made the actual plan in the concrete on October 2006. The title was ‘plan for the usage of TLCF’. Reviewed reports by Allianz Global Investment Asset Management were attached to this. According to the plan, the company selected the 17 objective items enough to make more than a billion profits and would ‘deal them in normal way’ till February and then ‘deal them for usage of TLCF’ from March 2007. And in the report on Jan 8th 2007, there were 3 scenarios for the actual activity plan. Besides, Allianz discussed the plan ‘to achieve the -10 billion KRW as uncollected income’ on Mar 9th, 2007. Related to this, they made actual strategy like “plan to make the profit from some uncollected income or stock sales in the market circumstances and fluctuation from Mar 12th to Mar 23rd, and plan to achieve the goal by making the profit from uncollected income stocks by selling the stocks actively according to the KOSPI scenario analysis and operation plan on last week of March."

According to the plan, Allianz sold the some stocks of variable funds watching the market circumstances and fluctuation from Mar 12th to Mar 23rd. Sticking to the plan of ‘making 25.5 billions disposal profits by selling 179.5 billions stocks’ on January 2007 report, Allianz’s disposal profits of selling stocks were close to 25.5 billions KRW.
On the end of March 2007, available carry-over deficit of Allianz was 236,991,551,189 KRW. And the standard of assessment was 202,360,651,418 KRW after tax adjustment; finally Allianz did not pay the corporate tax of 2007 at all by getting the best out of TLCF that was expired on March 2007 (Yonhap News, 2008.4.16).
“Allianz did not pay the corporate tax at all by getting the best out of TLCF which was expired on Mar, 2007. (Tax exemption for the 197.6 billions won losses in 2002)” said PSPD and “ Returns of variable funds of other insurance companies were the upward tendency at that time because of the rise of stock prices but Allianz variable funds were stagnated. So many policyholders of Allianz variable funds made civil petitions for the low returns.”

According to PSPD, Allianz Life Korea sold the stocks of Variable Universal Growth Fund (VUL) intensively through the interrelated enterprise Global Investment Asset when the KOSPI started to rise at 1400 on March 2007. Like the feature of variable funds to give the returns of funds to policyholders depending on funds management, Allianz does not need to sell the stocks at the KOSPI rising sharply (Maeil Labor News, 2008.04.18). Actually KOSPI showed the sharp rising over 2000 on July 2007.

It was reported on the internal documents on April 2007 that Returns of other insurance companies were the upward tendency but ‘Allianz VUL growth fund’ were stagnated. (Ohmy News, 2008.4.16) More concretely, the returns of Allianz VUL growth funds started to be fallen than the previous at March 2007. Allianz VUL was the 8th returns rate out of 390 VUL funds on January but was fallen to the 13th at the end of April. Compared to funds of major 6 companies, Allianz VUL had the second returns rate, but compared to the first fund of Metlife gaps of rate became bigger and bigger. Returns rate was 5.99% lower than Metlife on January, was 9.16% lower on April. About the reason of rate fallen, Allianz Life answered, “There were problems not in effect of asset distribution but in effect of selecting items.” This was written on the discussion of using Variable funds on April 30th 2007. (Pressian 2008.4.16)