BERLIN, March 10 (Reuters) - Germany’s finance ministry is planning measures to support life insurers struggling to meet guaranteed returns to clients in the face of low interest rates.
These could potentially include capping agent commissions and allowing greater flexibility on base rates.
“The finance ministry aims for a long-term, comprehensive stabilisation of life insurance,” Michael Meister, secretary of state at the ministry, told Reuters.
The measures will target a “fairer balance” between all savings clients insured under different maturities, as well as helping the firms themselves stay solvent.
There are 93 mainly small life insurers in Germany, many of which are struggling because of low interest rates. The biggest life insurer in Germany is Allianz with approximately 15 percent of the market share. Other companies include Munich Re insurance unit Ergo, Generali , Axa and Talanx.
Life insurers currently have to pay out half of their valuation reserves to customers who terminate their policy. This has become a problem as their high-yielding sovereign bonds trade at higher market values, while lower yielding new bonds are far less attractive.
The value gap between bond types has grown industry-wide to a high double-digit billion amount. Insurers would have to sell their high-yield bonds before they mature to realize the higher market value - not in their interest and not in the interest of all other policy holders whose contracts run longer.
Sources in Chancellor Angela Merkel’s right-left coalition government said that reforms under discussion included changes to the way theoretical profits from an insurer’s fixed-income assets are distributed among different clients.
Life insurers are obliged to distribute half of their so-called theoretical profits - profits that are on the books but cannot be achieved under current conditions - on fixed-income products to clients whose policies are expiring.
Only those whose policies are expiring or those who are terminating their contracts are benefiting, while those with longer-term policies are disadvantaged.
A spokeswoman for the finance ministry said there was no fixed timetable for the reforms. A government source said it was unlikely to be this month.
Germany’s Sueddeutsche Zeitung newspaper estimated the life insurance sector’s payments on maturing policies this year amounted to 2 billion euros.
“This is about helping life insurance companies to bridge the low-interest period,” said Alexander Erdland, president of the German insurers industry association (GDV).
“It is unfair and wrong if 19 customers get less money so the 20th can get more,” he said, adding that insurance firms were finding themselves having to distribute theoretical profits which they would rather reinvest.
A 2013 financial stability report by the Bundesbank showed low rates weakened the solvency of insurance companies. An attempt by the previous government to reduce pressure on insurance was blocked by the Social Democrats (SPD). (Reporting by Matthias Sobolewski in Berlin and Alexander Huebner in Frankfurt; Writing by Monica Raymunt; Editing by Stephen Brown and Toby Chopra)