Allianz SE got a boost from bond giant Pimco in the second quarter as its main insurance businesses felt the pinch of low interest rates.

Pacific Investment Management Co. attracted 23 billion euros ($25 billion) in third-party inflows in the second quarter, boosting assets overseen for outside clients at Allianz’s asset management arm to a record. Operating profit from non-life insurance, its largest unit, fell 5% from a year earlier, missing estimates for a gain in a company-compiled survey as it made less from investments.

Chief Executive Officer Oliver Baete has been looking to deals for growth as an abundance of capital and the prospect of continued low interest rates hurts investment returns. While big transactions have proven difficult to come by, Allianz in May agreed to buy two insurance businesses in the U.K. in deals valued at a combined $1 billion, transforming the firm into the second-biggest general insurer in the country.

Finance chief Giulio Terzariol said with interest rates expected to remain low for longer and equity markets poised for a “correction,” the company remains cautious for now.

‘Even Lower’

“We are preparing for an environment which might be a little bit tougher than we had before,” Terzariol said in an interview on Bloomberg TV. Rates “can go even lower. My working assumption is they’re not” rising.

The life and health unit, the second-biggest, posted an almost 15% jump in operating profit, even as it’s being hit by the prospect of lower interest rates for longer. The business will probably see a dent in revenue after Banco Santander SA in June agreed to pay Allianz 937 million euros to buy it out of an insurance joint venture in Spain. The deal will knock Allianz out of the top 10 life insurers in Spain, an unusual position for the German company.

Low, or even negative, bond yields aren’t the only challenge facing CEO Baete. The 54-year-old also has to fend off competition from passive fund managers. Allianz’s two big asset-management divisions are both active investors.

While Pimco benefited from strong net inflows, Allianz Global Investors saw clients pull 3 billion euros during the quarter. Allianz’s total assets under management, including the money it looks after for its insurance businesses, rose to 2.2 trillion euros.

Ripe for Consolidation

Asset management is another area ripe for consolidation, as the flight to cheaper, passive products puts pressure on fees, particularly at purely active managers such as Allianz. Earlier this year, the company explored a combination of its asset-management division with DWS Group, the money-management arm of Deutsche Bank AG, people familiar with the matter said at the time.

Germany’s biggest bank also spoke to other companies about a potential merger, Bloomberg has reported, but the discussions appear to have stalled for now as the bank focuses on its biggest overhaul in recent history.