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German watchdog dampens insurer hopes for quick relief

Monday, June 22, 2015 - 22:00

[FRANKFURT] German financial watchdog Bafin on Monday dampened insurers' hopes for a rapid easing of rules that force them to set aside billions of euros to ensure they can meet promises to people who bought savings policies with guaranteed interest rates.

"It is not the job of the supervisor to keep the weakest imaginable companies' heads above water by modifying the rules," Bafin President Felix Hufeld told a conference of insurance professionals.

German insurers are straining to build up their "additional interest rate reserve" or ZZR to cover guaranteed annual interest rates of up to 4 per cent on savings policies sold to customers in the past.

Mr Hufeld's comments indicate insurers will need to fend for themselves first - by overhauling their business models and improving efficiency as demanded by regulators - before they can expect help from Bafin tweaks to the ZZR.

The ZZR was made necessary by the plunge in official interest rates to near zero since the financial crisis, and the prospect that insurers' return on investment will remain far below the guarantees made to policy holders for some time to come.

Insurers collectively paid around 8.4 billion euros into the reserve last year, bringing the total to 21 billion since the ZZR started in 2011. Insurance observers estimate a further 12-14 billion euros may be needed this year.

The German association of actuaries earlier this year urged changes to ZZR rules so that insurers could build the reserve more slowly.

The rules are putting small life insurers under far more pressure than large players such as Allianz and Ergo , insurance observers say, because they are often less diversified and more dependent on their life business.

Bafin was looking closely at the challenge posed by the ZZR but it was not yet possible to say when it will intervene with changes, Mr Hufeld said. "We won't let the entire sector run into the ground, he said.

REUTERS