Life insurance: Bafin expects guarantees to crumble

Life insurances without significant guaranteed interest and without the full assurance of paid contributions: The low interest rates on the financial market that are foreseeable for years due to the corona crisis are increasingly eating into the classic old-age provision. “Several life insurers have already lowered the guaranteed interest rate for new business for 2021,” says Germany’s top insurance supervisor, Frank Grund. In some tariffs this is now 0.25 percent.

“Many insurers are now concentrating on new business rates with a guarantee level that is well below that of classic policies with 0.9 percent discount rate,” reported the head of insurance supervision at the financial supervisory authority Bafin.

The guaranteed interest is part of the current interest rate of the classic old-age provision, which is important for consumers. Added to this is the surplus participation, which insurance companies set anew every year depending on the economic situation and the success of their investment strategy. The current interest only relates to the savings portion that the insurer pays after deducting acquisition and administrative costs as well as the contribution for death protection.

Promises must be able to be fulfilled

The guaranteed interest rate set by the Federal Ministry of Finance – also known as the maximum technical interest rate – is still 0.9 percent. But that is too high for the supervisory authority in view of the low interest rates. The maximum actuarial interest rate is intended to prevent insurers from taking over. The insurance companies are allowed to offer less, but not more. The supervision had warned the insurers to be careful. “The most important consumer protection is that companies can keep their promises,” said Grund. “We are pleased that the low interest rates have been taken into account in the design of many new contracts for 2021.”

Due to the low interest rates, companies can hardly generate the high guarantee promises of up to 4 percent on the financial market any more. So you step on the brakes. Many insurers do not offer contracts with classic guaranteed interest rates for new business. In the meantime, the first insurance companies have also abandoned the full guarantee of the contributions paid. From the beginning of 2021, a guarantee of less than 100 percent applies to new contracts. They only exist where they are required by law or contractually agreed: with the Riester pension and the company pension scheme.

“The insurers follow the development on the capital market logically,” said Grund. It is now “very, very difficult” to guarantee a contribution guarantee. “Customers are not worse off per se when there is less guarantee and the insurers have more freedom when investing in the capital market. This can open up the opportunity for higher returns, from which customers also benefit through profit sharing. “

Life insurers and pension funds would have to be prepared for low interest rates for years to come because of the corona crisis, according to the expert. “At the moment, however, the situation is not threatening our very existence. We do not expect dam breaks. ”The supervisory authority is currently keeping around 20 of 80 life insurers and 36 of 135 pension funds under closer observation.

“Low interest rates have a stronger impact on pension funds than on life insurers, since pension funds almost exclusively have long-term pensions with, in some cases, high guarantees,” explained Grund. “Compensation through other business areas is not possible. In this respect, life insurers can react more quickly and also offer other products. “

In order to secure the high promises of the old contracts, the insurers have had to put money back since 2011. According to calculations by the Bafin, 10.5 billion euros will flow into the capital buffer – in technical jargon called additional interest reserve. In 2021 it should be 10.4 billion euros. “According to our current forecast, the peak should then be reached in 2030 with a total of 132 billion euros,” said Grund. “The additions to the additional interest reserve are a significant burden for companies. In some cases, they also have to dissolve hidden reserves. “

At the same time, Grund spoke out against completely banning insurance companies from paying dividends in the Corona crisis. But he urged caution. “Companies should only give out money to shareholders if they can afford it. We’ll check that. “

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