RPT-Fitch: German Life Insurance to Remain under Pressure from Investment Margins
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Dec 5 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says in a new report that German life insurers will continue to face the challenge of low investment margins, even if interest rates start to rise.
Fitch does not see the downward trend in investment income being quickly reversed, as new investment yields will likely remain below the yields of maturing bonds for several years. However, the agency believes German life insurers will be able to meet their policyholder minimum guarantees for a prolonged period, even if low investment yields persist. Hence the Rating Outlook for the German life insurance sector remains Stable even though the sector outlook, an indication of fundamental trends, is negative.
"There is considerable pressure on the ability of the insurance companies to earn a decent return on their investments, but Fitch expects rated German life companies to meet policyholders' guarantees," says Stephan Kalb, Senior Director in Fitch's Insurance team.
Fitch has simulated run-off scenarios for life insurance portfolios and associated investment portfolios with different assumptions. The outcome of these simulations supports Fitch's view that rated German life insurance companies are reasonably well prepared to meet the sector's current challenges.
The persistent low interest rate environment has had a negative effect on the capital buffers of German life insurers, which have been on a declining trend since 2008. The Zinszusatzreserve (ZZR), an additional reserving requirement in place since 2011, has reduced current statutory solvency ratios, although it helps to protect companies in a prolonged low interest rate environment. Fitch expects this pressure on capital to persist, as there will be a further requirement to build up the ZZR in 2014.
Fitch expects new business to grow moderately in 2014, supported by product innovations. This follows an expected decline in regular-premium new business in 2013, after new sales were boosted by special factors during the previous two years, namely, a planned reduction in the guaranteed rate in 2011 and the introduction of unisex tariffs in 2012.
The report, entitled '2014 Outlook: German Life Insurance - Investment Margins Under Pressure', is available at www.fitchratings.com.
Link to Fitch Ratings' Report: 2014 Outlook: German Life Insurance
Fitch is holding a teleconference to discuss the German life insurance sector outlook on Tuesday 10 December, at 15.00 UK time/16.00 Central European time.
Stephan Kalb and Christoph Schmitt, members in Fitch's Insurance team, will speak on the call and there will be time for Q&A. Participants can send questions in advance to firstname.lastname@example.org.
Date: Tuesday 10 December 2013
Time: 15.00 UK time/16.00 CET
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