Sticky transition

Too many life insurers still caught in interest-rate trap

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More insurers should get the point. Source: Getty

Insurance experts compared key business data of Germany’s 12 biggest life insurers, with sobering results.

The study weighs up insurers’ earnings power and levels of risk. Allianz Leben, Germany’s largest life insurer, took top honors in the overall scoring, and in a second ranking that factors in financial stability and customers’ participation in gross profits. R+V Versicherung, an insurance cooperative, and Zurich Deutscher Herold, the German life unit of the Swiss group Zurich Insurance, followed in second and third place respectively.

Herbert Weinmann, a business economics professor at Ludwigshafen College who led the study, noted a big gap between the leading three life insurers and the rest of the field. Only this trio was deemed to be on a strong footing business-wise.

The evaluation will provide new fodder for the ongoing discussion about the plight of German insurers. According to a recent report by the finance ministry, 34 life insurers – about 40 percent of the country’s total – are under special scrutiny by BaFin, Germany’s financial supervisory authority. These companies have issued forecasts that “indicate they could have financial difficulties in the medium to long-term,” BaFin said.

G S34 life insurance

Neither the insurers nor the government, however, will view the study with alarm. Europe’s insurance lobby pushed through a long transition period, lasting until 2031, before tighter EU requirements for risk management and reporting come into effect. In the meantime, insurers can tap buffering arrangements to ease the changeover.

Besides figures for changes in gross profit margins, profitability and solvency ratios, all of which the EU requires insurers report since 2016, the study weighed risk more heavily than before, taking record low-interest rates into account. Over the past decade, the European Central Bank slashed its key lending rate successively to counter the financial crisis, with zero percent in effect since March 2016. This has posed serious problems for life insurers, who saw their investment returns shrivel while struggling to pay off long-term endowment policies, often at rates of 4 percent or more.

While nobody scored 100 percent in the Ludwigshafen report, some insurers were worryingly towards the lower end of the scale. Generali Leben, which was sold this year to runoff specialist Viridium, was rated “economically weak,” while HDI Leben was taken to task for its low solvency ratio.

Mr. Weinmann concluded that tepid interest rates mean that life insurers simply have raised their profitability. Allianz Leben will continue to lead the pack in asset valuations, a gap its weaker rivals should strive to close with smarter investments, he said. These insurers must now focus more investment expertise on all permitted classes of assets, the study noted drily. It’s a wake-up call that some might not hear in time.

Carsten Herz covers insurance and asset management for Handelsblatt out of Frankfurt. Jeremy Gray, an editor at Handelsblatt Global, contributed to this article. To contact the authors:

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