May 27, 2014 / 11:07 AM / in 4 years

Germany plans to cut insurance guarantee rate - source

BERLIN, May 27 (Reuters) - Germany plans to lower the guaranteed rate of interest that the country’s life insurers offer on products as part of a package of measures to ease pressure on the sector from prolonged low interest rates, a government official said on Tuesday.

“It is our goal to follow the advice from actuarians to cut the (guaranteed interest) to 1.25 percent from 1.75 percent by January 1, 2015,” the official told reporters, speaking on condition of anonymity.

The finance ministry sets the guaranteed rate, which has traditionally been a focus for consumers and a headline selling point for life insurers.

Rock bottom central bank and market interest rates have slashed the income insurers can earn on their investments in bonds and other fixed income securities, making it increasingly hard to fulfil obligations to policy holders.

To ease the financial burden on insurers, Berlin has been cutting the guaranteed rate, most recently in 2012.

The official said the government planned to get the deal to lower the guaranteed interest through both houses of parliament before the summer recess.

As part of the planned package, the government also wants to increase the minimum contribution from policy holders to 90 percent of risk surplus, from a current 75 percent.

In case guarantees made to policyholders were at risk, payouts to the company’s shareholders could be blocked and participation in unrealised reserves on fixed income assets could be capped, the official said. (Reporting by Annika Breidthardt and Matthias Sobolewski; editing by Erik Kirschbaum and Stephen Brown)

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