April 20, 2014 / 12:02 AM / 4 years ago

German financial watchdog: Low interest rates could trouble bigger insurers

FRANKFURT, April 20 (Reuters) - Some bigger German life insurance companies could find themselves struggling if low interest rates persist, according to comments made by the country’s top insurance regulator in an interview with a newspaper.

Rock bottom capital market interest rates in Europe have slashed the income insurers can earn from their investments in bonds and other safe securities, making it increasingly difficult to fulfil obligations to policy holders.

There are 93 mainly small life insurers in Germany of which many are struggling because of low interest rates. But Felix Hufeld, head of insurance supervision at financial regulator Bafin, said many small insurers were in fact doing well and that their larger counterparts may be suffering.

“There are many smaller insurers that are on a very solid footing, but there may also be larger ones, who, through a combination of incorrect investment policies, high costs and high guarantees, have much work ahead of them,” he told German paper Welt am Sonntag.

“If we continue to have ultra low interest rates, this will affect life insurers. To believe anything else would be a mistake,” he was further quoted as saying. He added that insurers should reduce their costs further to make up for lower margins.

Germany’s finance ministry said last month it was planning measures to support life insurers that are struggling, such as capping agent commissions and allowing greater flexibility on base rates.

The biggest life insurer in Germany is Allianz with approximately 15 percent of the market share, and which has previously said that its business model can withstand prolonged periods of low interest rates.

Reporting by Victoria Bryan; Editing by Raissa Kasolowsky

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