Insurance Woes

A Two-Class System

The logo of Europe's biggest insurer Allianz SE is seen on the company tower at La Defense business and financial district in Courbevoie near Paris, France, March 2, 2016. REUTERS/Jacky Naegelen/File Photo
The life insurance division of Europe's biggest insurer Allianz is top of the pack. Others have not been so luck.
  • Why it matters

    Why it matters

    Life insurance has struggled perhaps more than any other financial sector of late, as record low-interest rates have made it difficult for these companies to generate returns on their premiums.

  • Facts


    • A study by the Institute for Financial Management at Ludwigshafen am Rhein University looked at the balance sheets of the 12 most important German life insurers.
    • It’s findings: Allianz Leben and Debeka are at the top of the list. At least two other firms are rated “weak” and in more serious danger.
    • Hermann Weinmann, the professor who led the study, said he still believes the insurance industry overall is stable.
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It’s never easy to be ranked against your peers. For Germany’s struggling life insurance companies, the timing couldn’t really have been much worse.

A new study examining the health of Germany’s top 12 life insurance firms reveals something of a two-tiered society developing in the struggling industry. A striking economic gap has opened up between these companies, long relied on by Germans to bolster their savings after retirement.

“In terms of returns, for example, the divergence is huge,” said Hermann Weinmann, a business professor at the Institute for Financial Management at Ludwigshafen am Rhein University, which conducted the comprehensive study. “The insurers’ difficulties are thus only partly an industry-wide disease,” he added.

“In terms of returns, for example, the divergence is huge. The insurers' difficulties are thus only partly an industry-wide disease.”

Hermann Weinmann, Business professor, Institute for Financial Management at Ludwigshafen am Rhein University

That industry-wide disease Mr. Weinmann is referring to is the plague of low interest rates. Insurers across Europe have struggled mightily to make a living of late, as they typically rely on generating yields from the premiums they collect in order to generate profits.

In the record-low interest rate world that has become a fact of life since the 2008 global financial crisis, yielding strong-but-safe returns has become harder than ever. Regulators including the International Monetary Fund have already begun warning of an industry-wide crisis.

The latest study was painstaking work. In an extensive balance-sheet examination, the Institute for Financial Management at Ludwigshafen am Rhein University scrutinized the finances of the top 12 German firms and essentially created a ranking. The findings will not be welcomed by all the top managers in these companies.

The report, released Thursday in the “Zeitschrift für Versicherungswesen,” praised the economic performance of Allianz Leben and Debeka as “very strong,” for example. The subsidiaries of insurance powerhouse Allianz and of the state-backed Debeka bank, respectively, have weathered the recent low interest-rate storm better than most, said Mr. Weinmann.

By contrast, two other companies were viewed much more critically. Provinzial Nordwest and Ergo Leben sit at the bottom of the heap, their finances rated “weak.”

The proof is in the numbers. Allianz Leben recorded a healthy €578 million in profits last fiscal year. Axa Leben, a subsidiary of the French insurance giant, also posted a decent €112.5 million. In contrast, Ergo Leben, a subsidiary of the world’s largest reinsurer Munich Re, by achieved profits of only €6 million. Another rival, R+V, did without profits entirely.

The report went beyond just profits to highlight the German insurance divide. It used a points system to evaluate such indicators as the average interest rate of policies, the firms’ cost ratios and their surplus funds.

Allianz Leben and Debeka each attained an overall sum of 800 to 1000 points. They were followed by the French rival Axa Leben as well as Alta Leipziger, the best-performing mutual insurance company.

Professor Weinmann said he saw a “weak performance” only from the two last-place finishers, Provinzial Nordwest and Ergo Leben, each of which received only 400 points.

It’s a wake-up call that has already reached Markus Reiß, the new head of Ergo. At the beginning of July, Mr. Reiß initiated an extensive restructuring that will eliminate 1,800 jobs by 2020.

His situation may be the worst, but the entire industry needs to respond to the new realities, a point that has been made repeatedly over the past few days as Europe’s insurers met for an annual conference in Monte Carlo.

“Times have changed; all insurers have to do something,” said Mr. Weinmann.

Still, Mr. Weinmann doesn’t believe customers need to worry about any of the large insurers going bankrupt just yet. All in all, he still considers the industry to be in a stable situation.

“At almost all the companies, the figures with respect to financial security are better than one could expect in terms of public opinion,” he said.

That, at least, is a message that will be greeted favorably, and not only by the boss of Ergo, Mr. Reiß.


Carsten Herz is a financial correspondent for Handelsblatt in Munich. To contact the author:

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