German life insurers’ own funds are decreasing
In lengthy negotiations, German insurers negotiated easing the rules on own funds. It is becoming more and more evident how important this negotiation success was. Consumer advocates view this critically.
DGerman life insurers have had to contend with deteriorating investment conditions in the past year. That has worsened their financial stability. As of December 31, 2020, the relevant zero coupon Euroswap curve was minus 0.27 percent, half a percentage point below the previous year’s value.
As a result, the solvency ratio, i.e. the equity ratio to cover long-term interest obligations, fell by 53 percentage points to 203 percent. This emerges from an analysis of the solvency reports by the independent consultancy Zielke Research Consult GmbH and the Association of Insureds. Insurers have to achieve a quota of 100 percent if they want to keep their business going.
In the meantime, 19 of the 80 German life insurers can only meet the requirements of the capital adequacy rules by applying the transitional rules granted until 2032. These include prominent names such as Signal Iduna, HUK-Coburg, Debeka and Ergo. The author of the study, Carsten Zielke, sees some positive aspects: insurers have diversified their capital investments more broadly and thus reduced risks, and his criticism of the lack of transparency in the reports over many years has led to an improvement in the level.
Annuity ties up a lot of your own resources
The tense situation can be improved if politicians no longer link the tax advantages of old-age provision products such as Riester or Rürup pensions to capital retirement. That could reduce the average duration of the obligations by eight to nine years and strengthen the own funds by 15 to 25 percent.
The consumer protection organization Bund der Versicherung emphasized that only seven life insurers showed an acceptable profit expectation from a consumer perspective. “Some insurers will not survive the next few years,” said CEO Axel Kleinlein. “The industry has apparently deliberately ignored the warning signals of the last few years, the price is paid by customers.”
For the first time, French insurers have also used the transitional rules, which should be reserved for local companies due to the special model of German life insurance companies. “From an actuarial point of view, the use of the transitional measures must not be understood as a sign of weakness”; replied Herbert Schneidemann, the chairman of the board of the German Actuarial Association of actuaries employed by companies. “Rather, it is the result of a careful risk analysis and corporate strategy.”