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UPDATE 1-Watchdog sees German insurers moving fast to new life products
June 19, 2014 / 11:52 AM / 3 years ago

UPDATE 1-Watchdog sees German insurers moving fast to new life products

* Life insurers seen shifting toward new savings products

* Bafin official sees move in months rather than years

* Interest rate cut may speed innovation by insurers (Adds further comments by Hufeld)

By Jonathan Gould and Alexander Hübner

FRANKFURT, June 19 (Reuters) - German life insurers will shift quickly towards new savings products with fewer guarantees as the sector responds to the challenge of low interest rates and tighter regulation, a top German regulator predicted.

Officials have been urging the country’s more than 90 life insurers to broaden their product palette beyond traditional savings products that offer a guaranteed rate of return, said Felix Hufeld, head of insurance supervision at German financial watchdog Bafin.

“We’re encouraging the insurers to innovate; there is plenty of room between products with traditional guarantees and purely index-linked policies,” Hufeld told Reuters in an interview.

German life insurers have seen their margins squeezed, having sold savings policies with guaranteed interest rates of up to 4 percent in the past, compared with a reinvestment yield of under 1.4 percent on 10-year bonds bought today.

German market leaders Allianz and Ergo launched products with more limited guarantees last year, hoping customers would still be lured by potentially higher overall returns. Other insurers are expected to follow suit.

“Many companies are waiting to see what happens but it is a matter of months rather than years,” Hufeld said. A prolonged period of low interest rates could pose a threat to financial stability if steps are not taken to counteract it, Hufeld said.

Bafin has advised the German government on a package of measures now before parliament and aimed at helping life insurers stay financially healthy even if low yields last for years.

One element of the package requires insurers to cut the interest rate they are allowed to offer on guaranteed savings policies to 1.25 percent from Jan. 1, 2015, from 1.75 percent now.

Credit rating agency Standard & Poor’s this week said the cut would make traditional products less attractive and crimp growth in the segment.

“This may well accelerate the trend toward developing new products with varying guarantee features in order to offset potentially weaker new business for traditional guaranteed products,” S&P said.

The measures proposed by the government to shore up the insurance sector must not be compared with the bailout packages required by some banks in the financial crisis, Hufeld said.

“No one need worry about the safety of their policies; the resilience of the insurance industry is high,” he said. (Editing by Mark Heinrich)

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