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.