A Possible Lifeline

How to Insure the Insurers

Protektor head Jörg Westphal is the last best hope for German insurers if they run into trouble.
  • Why it matters

    Why it matters

    Many Germans have cancelled their life insurance policies as rock-bottom interest rates eat into their returns, fueling doubts about the health of the sector.

  • Facts


    • Protektor, which is headquartered in Mannheim and Berlin, was founded by German life insurers as part of a private initiative in 2002 to act as a safety net for the industry.
    • In 2006, the company took over the tasks and powers of Germany’s statutory guarantee fund for life insurance providers, which had been created two years earlier.
    • Around 90 million life insurance policies are currently held in Germany, reflecting their widespread popularity as a savings strategy.
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It is the final lifeline for Germany’s many life insurance policy holders, but most people don’t even know it exists.

Protektor, a private company that since 2002 has formed a sort of security blanket over the troubled industry, is based in an inauspicious four-story building in Mannheim, an industrial town in the central German state of Hesse. Even taxi drivers can’t name the building if you ask them to take you there.

And yet, Protektor could soon play a critical role in Europe’s largest economy. With interest rates at record lows across Europe, life insurance firms in particular are teetering on the brink. If they fail, it will be up to Protektor to pick up the pieces and ensure that policy holders still get their payouts.

Jörg Westphal became the head of Protektor in 2005. In an interview with Handelsblatt, he assured that his company has the resources to handle a possible crisis. Even large insurance companies could be saved if they run into trouble, he said.

“All in all, we can therefore rescue even very, very large insurers. There would be no shortage of funds.”

Jörg Westphal, head of Protektor Lebensversicherungs-AG

In the wake of speculation of a potential collapse of German life insurers, Mr. Westphal said he had no information beyond newspaper reports, but emphasized that he did not expect any insurers to get into difficulties in the medium term.

If there is a crisis, Mr. Westphal said that the fund was filled with some €900 million (a little over $1 billion). This sum would only be needed to offset balance-sheet deficits at insurers, not to pay out the full value of policies immediately. There are contingency measures in place too if the cash runs out, he assured.

Nearly every German life insurer is a member of Protektor and has already contributed cash. Exactly how much they contribute depends on their market share.

Mr. Westphal noted that he can demand additional funds if there is a serious crisis. If the €900 million fund on hand is not enough, Mr. Westphal said that insurers have agreed to pay special contributions which would swell the total sum available to €1.8 billion.

As a third step, he added that the regulator could cut the payouts which policyholders are entitled to by up to 5 percent. He said that customers he has discussed this with agreed it would be acceptable given the perilous industry situation.

“All in all, we can therefore rescue even very, very large insurers,” Mr. Westphal said. “There would be no shortage of funds.”

Mr. Westphal emphasized that he hoped no German insurers would run into problems, as this could damage life insurance as a product and would likely deter some investors from saving for their retirement. The larger the struggling company, the more it could dent the industry’s reputation, he said, adding that a chain reaction could be triggered.

Speculation has recently been rife about the potential collapse of German life insurance companies. The market is large and fragmented, with many providers offering guaranteed returns that they are struggle to fulfill in view of persistent low interest rates in the 19-nation euro zone. Many also face problems due to mismatched assets and liabilities.


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While Mr. Westphal insisted he’s ready for a crisis, from an organizational viewpoint he admitted that the rescue of a large insurer would be tricky. If an industry giant were to collapse, the guarantee scheme would not be in a position to take over its portfolio, he said, as it would need IT systems and staff. Another solution would be needed, he said, for example the possibility of government guarantees to support the insurer and reassure customers they would get their money back.

Should an insurance company experience difficulties, he said it was likely to be a temporary blip. However, he also underlined that Protektor would be able to react quickly, saying it had “emergency plans in the drawer.”

Protektor has some experience in the matter. After its creation in 2002, it took over the portfolios of former German life insurer Mannheimer Leben the following year, when the latter was on the brink of insolvency.

Mr. Westphal said this was a turbulent time. Many customers had been unsettled by speculation about the company’s woes, and many had written to the company. The mail room at Mannheimer Leben contained “laundry baskets full of letters,” he said, adding that the company was unable to cope with the volume, not least as it was in the throes of restructuring.

Mr. Westphal said Mannheimer’s difficulties were due to the large losses the company had sustained on shares it had bought, which had a drastic impact as the shares represented a significant volume of its overall investment portfolio.

That has since changed. According to the latest figures from the Bundesbank, Germany’s central bank, equities now account for less than 5 percent of German insurers’ investment portfolios. This means that even significant plunges on the stock markets will not cause insurance companies to topple, Mr. Westphal said.

These low share quotas come in the wake of an era when it was not unusual for insurers to allocate a double-digit percentage of their portfolios to shares, boosting their exposure to market volatility. Asked about the figures at Protektor, he said that it held only fixed-income securities in its own portfolio.

Mr. Westphal said that Protektor still holds around 107,000 of the 344,000 contracts originally taken over from Mannheimer. The churn rate has been just under 3 percent for some time; those customers who wished to terminate their contracts have done so, he said, but many others have contracts with a 4-percent guarantee, which he would not advise them to terminate.

He confirmed that Protektor is in negotiations regarding the sale of these insurance policies, as was planned from the beginning, and expects to know by the middle of the year whether or not a sale will go ahead.

“But it’s very important to us to make sure the portfolio is in good hands,” he said, highlighting that the image of life insurance would be damaged if this were not the case. “That would contradict the fundamental idea of Protektor.”


Kerstin Leitel covers banks and insurance companies. To contact the author: leitel@handelsblatt.com

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