UPDATE 1-Allianz bucks trend by keeping insurance yields steady
* Allianz keeps bonus rate steady for first time in 5 years
* Decision increases competitive pressure on peers
* Insurers have been cutting rates to bolster finances (Adds Allianz and rating agency comment, background)
By Alexander Hübner
FRANKFURT, Dec 4 (Reuters) - Allianz bucked the trend towards lower yields and increased pressure on its competitors on Wednesday by keeping the "bonus rate" it pays on German life insurance savings policies steady next year for the first time since 2009.
Many life insurers sold savings policies with guaranteed long-term interest rates as high as 4 percent and are now struggling to meet those promises as rock bottom rates have cut the investment income needed to make good on their commitments.
Most have trimmed the bonus payments they make over and above the guarantee as a result.
Market leader Allianz Germany said it would keep the bonus rate steady at 3.6 percent in 2014 for its 9 million life insurance policy holders.
"This is a strong signal to the rest of the industry," Lars Heermann, an analyst at specialist insurance rating agency Assekurata, told Reuters.
Cooperative insurer R+V, the country's No. 4 player, this week said it would cut its bonus rate by 0.2 percentage points next year to 3.4 percent, but many small insurers will try to match Allianz's decision to stand pat, Heermann said.
German watchdog Bafin remains worried that some insurers may fail once new industry capital rules come into force in 2016 and is urging action to avert problems.
Heermann said that even financially weak insurers would hardly dare cut the bonus to below 3 percent.
Bonus rates for the industry would hold in the 3.4-3.5 percent range in 2014, after cuts of about 0.3 percentage point trimmed the bonus to 3.6 percent this year, he said.
Alf Neumann, a board member responsible for life insurance products in Allianz's German operations, said an uptick in investment yields this year helped justify staying put on the bonus rate. The return on newly invested capital over all asset classes stands at about 3.7 percent.
"After a very turbulent year, capital market interest rates are now higher than they were a year ago," he told Reuters.
Allianz is investing more of its clients' money in listed shares, longer maturity debt and alternative investments like renewable energy, he said.
"As a financially strong insurer, we have more possibilities than other insurers to smooth bonus payments," Neumann said.
Assekurata's Heermann said that more and more insurers are touting their financial strength as a selling point to clients. "The current bonus rate is losing strength as a sales argument in favour of an emphasis on long term reliability," he said. (Additional reporting by Jonathan Gould and Ludwig Burger; Editing by Louise Ireland and Harro ten Wolde)
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