Germany plans to let insurers broaden their investments

BERLIN Wed May 28, 2014 11:56am EDT

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BERLIN May 28 (Reuters) - Germany plans to make it easier for insurance companies to invest in infrastructure projects, to help insurers earn better returns as they struggle with prolonged low interest rates.

A finance ministry paper seen by Reuters on Wednesday showed the government had proposed expanding the types of assets insurers can invest in. It would allow them to loan money to infrastructure companies that invest in Germany's alternative energy, for example.

"The guidelines for investment shall be changed in order to make it easier for insurers to invest in potentially more lucrative assets," read the paper. "Given the current low interest rate environment, the investment possibilities in infrastructure will be broadened."

Interest rates have hit bottom, leaving insurers struggling to earn returns from their fixed-income investments. That is making it harder to fulfil their obligations to policy holders.

Insurance companies are among the most powerful investors globally. German insurers and reinsurers currently invest more than 80 percent of their 1.4 trillion euros of capital investments in fixed-income assets, such as government debt.

But current returns of around 1.4 percent on German government bonds compare with average interest they offer to clients of 3.2 percent. The government is currently working on a bundle of measures, including lowering the guaranteed interest rate insurers can offer.

German insurers are likely to welcome the plans, having long lobbied for easier conditions for investing in infrastructure and private-equity investments.

At the European level, however, solvency II rules require a high capital ratio for such investments, and the German government has not yet made clear how it plans to address that.

(Reporting by Matthias Sobolewski,; additional reporting by Kathrin Jones,; writing by Annika Breidthardt; Editing by Larry King)

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