Status: 06.01.2023 11:20 a.m
Interest rates on the capital market are rising again. Life insurance customers should benefit from this. At the same time, the financial supervisory authority BaFin sees risks for ongoing business due to the economic situation.
According to the financial regulator Bafin, many life insurance customers can expect rising interest rates for traditional old-age provision in the coming years. “I’m already expecting that the profit participation will increase across the board, of course depending on the situation on the capital market as a whole, including the stock and real estate markets,” said Germany’s top insurance supervisor Frank Grund the news agencies dpa and dpa-AFX.
The first insurers, including the industry leader Allianz Leben, have already increased the bonus for 2023. However, many companies are still leaving them unchanged.
“No more high guarantees”
Life insurers determine the profit sharing annually based on the economic situation and the success of their investment strategy. In addition, there is the maximum technical interest rate, also known as the guaranteed interest rate. According to a decision by the Federal Ministry of Finance, this has been 0.25 percent for new contracts since the beginning of 2022. Old contracts bring significantly more returns. Both form the current interest rate, which only refers to the savings portion after deducting acquisition and sales costs, among other things.
Grund does not assume that life insurers will get high guarantees back on their books on a large scale. The industry was hardly able to earn the interest rate promises from old contracts of up to four percent in the interest rate doldrums on the capital market. The vast majority has therefore only offered new customers products with a slimmed-down guarantee for a number of years.
Grund believes that a renaissance of classic life insurance with a full guarantee is difficult to imagine. “The market has learned the hard way how expensive guarantees are. I don’t think anyone will go back voluntarily. There are many interesting alternatives with opportunities for customers.”
Situation of pension funds difficult
A lot of money from insurers has been invested in relatively low-interest government bonds in recent years. Their value has fallen due to the recent rise in interest rates. Hidden burdens arise in the balance sheet. If insurers are forced to sell these securities before the end of the term, they would have to write down the value accordingly. That would weigh on the balance sheet.
Added to this is inflation, which the insurance supervisor believes could have consequences for ongoing business. “Companies should be prepared for the fact that new customer business is not going as planned.” Cancellations of existing contracts or waivers of contributions by customers cannot be ruled out because consumers need money for other things. The insurance supervisor does not yet see a large wave of layoffs, but companies should ensure adequate liquidity management.
According to Grund, 15 of the approximately 80 life insurers are currently under more intensive supervision. Currently, no life insurer has to make use of the transitional measures of the European regulatory framework Solvency II.
Rather, the companies are already meeting the requirements that will become mandatory from 2032. According to Grund, the situation of pension funds continues to be more difficult. “We’re a little more worried about a good 30 of the more than 130 health insurance companies.” Pension funds could benefit from rising interest rates in the medium term if the funds released are reinvested at higher interest rates.