German parliament approves new life insurance law

Fri Jul 4, 2014 12:39pm EDT

Related Topics

* Law to help industry cope with low interest rates

* Guaranteed rate savings policies to fall to 1.25 pct

BERLIN, July 4 (Reuters) - Germany's lower house of parliament on Friday approved a new law aimed at ensuring life insurers meet interest rate promises to their customers amid low returns from government bonds.

The law gives financial watchdog Bafin the power to prevent insurers from paying out dividends before all promises to customers have been fulfilled.

To ease the burden on insurers, the law also cuts the minimum guaranteed interest rate on life insurance savings policies that insurers will be allowed to offer to 1.25 percent from 1.75 percent starting next year.

The changes are aimed at shoring up Germany's 93 mainly small life insurers, many of which are finding it increasingly tough to service interest rate guarantees as high as 4 percent on policies sold up to the year 2000 while benchmark 10-year government bonds currently yield only 1.3 percent.

A study by the central bank showed that by 2023, more than one third of Germany's life insurers would be unable to meet regulatory capital requirements if interest rates remain persistently low.

However, big German life insurers such as Allianz Munich Re's Ergo and Talanx, as well as foreign players such as Italy's Generali and France's Axa, are seen as capitalised well enough to withstand low interest rates for a prolonged period. (Reporting by Matthias Sobolewski; writing by Alexandra Hudson; editing by Jason Neely)

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