There Is Gold in Graying Europe.(retirement financial market)

The code name was Operation Umbrella. The agents were bankers, lawyers and executives from two of Europe's largest financial institutions, nicknamed "Alpha" and "Delta" by insiders. These corporate 007s spent much of the year in stealth mode, huddling in Munich hotel lobbies and trading top-secret information at a chalet in the Bavarian Alps. When their cover was blown at the end of March, corporate Europe was stunned. Allianz, the continent's largest insurer, would buy Germany's Dresdner Bank for (euro) 31 billion. Together they would create the world's third largest financial-services firm, with more than 70 million customers in 80 countries. And by unraveling the incestuous cross-shareholdings among half a dozen of Germany's leading banks and insurers, the complicated deal had begun the long-awaited overhaul of the country's old-boy business world. Across Europe, the press cast the deal as a quake that could reshape the German financial landscape.

It was all that, and something more. The impact on German business was just the collateral damage of a deal done to exploit the fastest- growing market in all of Europe's financial history--private pensions. More than a year before the merger announcement, Allianz chairman Henning Schulte-Noelle had followed trends showing that European welfare states aren't prepared to support a growing population of aging baby boomers in their golden years. Public pensions, or pay-as-you-go systems, might have worked when there were plenty of young people to support each retiree. But low birthrates and increased life expectancies have changed the equation. By 2050, workers in many parts of Europe will have to support double the current number of retirees. Governments from Italy to Sweden are reforming pension systems to boost the private market for retirement funds that will grow faster in Europe than in the United States over the next 10 years. Goldman Sachs predicts that the retirement assets of households in the United Kingdom, Germany, France, Italy and Spain will rise from more than $3.1 trillion today to more than $10 trillion in 2010. "This is the pie that has people drooling," says Allianz's chief spokesman in Munich, Emilio Galli-Zugaro.

The shift to an equity culture in Europe was by no means top secret. For years Allianz has angled for a larger slice of the mutual fund market, particularly in Germany, where retirement assets are predicted to grow at 16 percent per year, spurred on by a new and dramatic welfare reform. But until its merger with Dresdner, Allianz had little chance of increasing its share. The company's 12,000 insurance agents were used to hawking auto policies. Unfortunately, the new, more sophisticated German investor wasn't much interested in insurance, and Allianz's creaky network of door-to-door salesmen were no help in explaining the ins and outs of global equity funds. Three years after setting up an asset-management division, Allianz's share of the mutual- fund market fell by half. "We had little chance among young, urban customers," admits Galli-Zugaro. "The old concept where agents would push their products on customers is dead. Today, customers choose products and channels themselves, whether they deal with an agent, a bank branch or over the Internet."

It would take "a lot of work," Schulte-Noelle told shareholders, for Allianz to get a piece of that market. Several ...