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Life insurance guarantees are expected to fall sharply

D.he German actuaries, in view of the prospect of even lower interest rates, recommend significantly lowering the interest rates on life insurance. The German Actuarial Association (DAV) demanded on Wednesday that the maximum technical interest rate should be reduced from 0.9 to 0.25 percent. The mathematicians, as their own experts, submit a recommendation to the Federal Ministry of Finance every year, which sets the maximum technical interest rate on this basis.

“The maximum technical interest rate is still an important instrument to ensure that the interest obligations under commercial law can be met at all times,” said DAV chairman Guido Bader in a statement. “For companies and their responsible actuaries, this political requirement is the decisive guideline for the company-specific determination of the respective guaranteed and actuarial interest”.

In the years after the market was liberalized in 1994, the ministry, which is currently led by Olaf Scholz (SPD), adhered to the mathematicians’ recommendation. But when the low interest rate situation worsened at the beginning of the last decade, the Berlin officials in the era of Minister Wolfgang Schäuble (CDU) already lowered the interest rate against the advice of actuaries. “The proposal to lower the maximum technical interest rate is understandable because of the further decrease in interest rates,” said the general manager of the GDV industry association, Jörg Asmussen. “The legislature should now quickly initiate a Riester reform. In particular, the premium guarantee that has been required up to now must be relaxed in order to continue to enable a security and opportunity-oriented investment of customer funds. “

It used to be the central control tool for the classic life insurance with a fixed annual interest rate. The maximum discount rate is so called because insurers may discount their future obligations in the balance sheet at a maximum of this value. So they are not allowed to set their guarantees for customers higher than this interest rate. In the past few years, providers have reduced their annual guarantees more and more because of the low interest rates.

The discount rate change that the Ministry of Finance would have to decide would only affect new contracts, of which fewer and fewer are being sold with traditional guarantees. In particular, subsidized products such as the Riester pension are included; they have a strict contribution guarantee. Although the Solvency II supervisory law stipulated additional capital requirements, the actuaries still want to adhere to the instrument. Bader demanded that the federal government should decide in the first quarter of next year so that the insurers can adjust to it.

Allianz lowers bonus participation

At the same time as this decision, the German market leader in life insurance announced that it would once again reduce its profit participation. Allianz Leben is reducing its total return on classic products by 0.2 percentage points to 2.9 percent. This already includes the final and only one-time components. The annual interest rate is therefore only 2.3 percent. For several years now, the company has been directing its customers more towards their pension product, perspective, in which the guarantees and annuity factors are only assured until the start of retirement age. Here the bonus is 2.4 percent and the total return for a customer who is now leaving is 3.2 percent.

“With the decision on the total return, we continue to set ourselves apart from other, comparably safe investments where customers have had to live with zero and negative interest rates for years,” says Andreas Wimmer, CEO of Allianz Leben. Now it is a matter of achieving even greater degrees of freedom in capital investments. That could be done through even lower guarantees. Because the guarantees force insurers into low-interest fixed-income securities.

Actuaries and market leaders pull together on this issue. “In today’s negative interest world, products with a 100 percent premium guarantee no longer make actuarial sense. They narrow the scope for capital investments in the interests of the insured, ”said DAV chairman Bader. That would be alarming, as it is not foreseeable that the interest on fixed-income securities will rise again in the coming years. The actuaries therefore consider a lower maximum actuarial interest rate to be unavoidable.

“Although insurers have already adjusted their investments to the persistently low interest rate environment in recent years, the latest capital market turmoil is inevitably reflected in companies’ investment results,” said Bader. “In addition, the European Central Bank recently announced that it sees scope for further rate cuts.”

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