Felix Hufeld

Regulator: Life Insurance Rates May Have to Fall

BaFinHufeld-UtaWagner
BaFin Head Felix Hufeld wants tougher penalties for banks.
  • Why it matters

    Why it matters

    Insurers are pleading to be allowed to cut life insurance rates, to cope with the low interest rate environment. The financial regulator, BaFin, is one of the bodies that can ensure their pleas are heard.

  • Facts

    Facts

    • Germany’s BaFin shares overall supervision with the Bundesbank. Since 2015, it supervises Germany’s top 21 banks together with the European Central Bank.
    • Last year, the BaFin imposed fines totaling more than €40 million for infringements of money laundering rules, including the highest individual fine ever imposed.
    • The insurance industry, struck by record low interest rates, wants BaFin to recommend that guaranteed life insurance rates be lowered below 1.25 percent.
  • Audio

    Audio

  • Pdf

For the past year, Germany’s financial regulator has been keeping a close eye on firms that are struggling to stay afloat in today’s historically-low interest rate environment. In particular, it’s watching the insurance industry like a hawk.

That suits Felix Hufeld just fine. The head of Germany’s top financial regulator, BaFin, was the country’s top insurance regulator before he took over the lead position at the agency last year.

In an interview with Handelsblatt, Mr. Hufeld talks about why he believes that long-term, guaranteed interest rates on life insurance cannot remain as high as they are. Mr. Hufeld acknowledged that the pressure on life insurance companies at the moment is enormous.

The government-set rate determines the maximum interest that life insurers can offer their customers. Since the European Central Bank has pushed interest rates in the 19-nation euro zone to record lows of zero and below, the guaranteed rate has been repeatedly lowered.

Now the industry is pleading to have the guaranteed interest on life insurance cut once again from its current level of 1.25 percent and Mr. Hufeld suggests he is likely to oblige. BaFin must now decide how it will advise the German government, which has the final say on the matter.

But insurance isn’t the only thing on Mr. Hufeld’s mind. In light of the many scandals that have struck the financial industry in the past few years, he also talks to Handelsblatt about why he wants tougher penalties for money laundering and other infractions. Among the many scandals facing the industry, he acknowledged that the number of German banks involved in dividend stripping probably runs into the double digits.

Mr. Hufeld also has a broader warning for the German economy: The country’s real-estate boom is nearing dangerous territory, he says.

The following is the full interview with Felix Hufeld, president of BaFin.

 

Mr. Hufeld, the International Monetary Fund recently warned of the dramatic consequences of low interest rates for insurance companies. How dangerous is the situation?

Of course, the pressure on the insurance industry is enormous. According to our forecasts, capitalization will remain stable in the short to mid-term. However, the long-term consequences are extremely difficult to factor in. I cannot exclude the possibility that individual life insurance firms will be forced out of the market.

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