November 8, 2012 / 4:36 PM / 5 years ago

UPDATE 1-Berlin eyes stable insurance guarantee rate in 2013

* Finance ministry sees no cut to guarantee rate in 2013

* Insurers can meet short-, medium-term obligations -FinMin

* Low interest rates prompt insurers to rethink products (Adds finance ministry, insurer comment, background)

FRANKFURT, Nov 8 (Reuters) - Germany’s finance ministry on Thursday said it expected no further cut to the rate insurers can guarantee their customers on savings policies in 2013, as the industry suffers from low government bond yields.

Earlier, financial daily Handelsblatt cited government sources as saying the ministry and markets watchdog Bafin were considering trimming or possibly suspending the guaranteed rate altogether to lighten the financial burden on insurers.

Traditional insurance policies that guarantee a return to the policy holder over many years regardless of financial market fluctuations are hugely popular in Germany, accounting for about 70 percent of new business, with the rate closely watched by the public.

The ministry said the rate is calculated using fixed insurance supervision rules and is checked annually.

“Based on currently available data, we expect no further reduction in 2013,” the ministry said in a statement.

Berlin already trimmed the guaranteed interest rate insurers are allowed to offer on new policies to 1.75 percent from 2.25 percent at the start of this year in a bid to help the sector.

Rock-bottom interest rates on the government bonds in which insurers primarily invest are slowly eroding insurers’ ability to make good on their long-term obligations to policy holders, prompting many companies to rethink their product offering.

The finance ministry and Bafin have long been aware of the risks stemming from low interest rates and are monitoring insurers closely, a ministry spokeswoman said.

“The lion’s share of insurers’ capital portfolios are still earning high yields, so that in the short and medium term there is no threat to insurers’ fulfilling their promises,” she said, adding that the German government had already made or proposed changes in the law to head off long-term problems.

For example, insurers now must build extra reserves if the yield on reinvested funds falls below the rate needed to pay customers.


Munich Re Chief Financial Officer Joerg Schneider on Wednesday said he expected the changes in German life insurance regulation to lead to more rational competitive behaviour and new product offers that would give shareholders a better risk-reward balance than traditional portfolios.

“Munich Re will change its product profile in the course of 2013 quite drastically,” he said of the company’s life insurance business at its ERGO unit, in a conference call with analysts on the reinsurer’s third-quarter results.

Schneider said it was too early to give details but the products would be based on a very limited guarantee and would include a link to capital market performance.

Europe’s biggest insurer Allianz is also revamping its life insurance offering for 2013, possibly with products where the level of guarantee could be adjusted at different points over the life of the policy.

Germany’s insurance trade association GDV on Thursday said that there were no grounds for alarm over the industry’s ability to meet obligations to policy holders but acknowledged that low interest rates were an increasing challenge.

“If private retirement savings is to be worthwhile, an exit from expansionary monetary policy is unavoidable,” GDV said. (Reporting by Jonathan Gould and Matthias Sobolewski; Editing by David Holmes and Mike Nesbit)

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