Germany’s life insurers are taking accelerated steps toward a joint emergency fund to bail out struggling firms, and executives see the effects of stock market volatility as the industry’s prime headache.
Insurance companies need to do some fast calculation
In a new survey from Hamburg-based consulting firm Mummert + Partner Unternehmensberatung AG, 53 out of 100 life insurance executives said the vulnerability of their capital-market investments is a key worry, and strategies to cut risk related to their exposure are urgently needed. About 20 percent of respondents said they are working to improve their capital-market investment management toward securing a better return on investment.
The slide in the stock markets has hurt the investments of insurers and forced many of Germany’s 122 life companies to sharply reduce their projected payouts to policyholders. Many insurers are cutting the annual bonus they pay on policies.
Some insurers are even having problems paying the guaranteed 3.25 percent return on whole-life policies, which combine insurance and retirement savings because of the prolonged stock market slump and low bond yields.
Germany's insurers said that the creation of an emergency fund would be discussed at a meeting on Monday, chaired by the German insurance industry association, Gesamtverband der Deutschen Versicherungswirtschaft (GDV). This fund would be created under an independently listed company and would be a lender of last resort to any German life insurer unable to pay the guaranteed returns at the end of the year.
The donation of each insurer to the fund would be linked to their respective market share, according to current considerations. Under the proposed plan, stronger insurers would also take over a troubled insurer’s investment strategy until it recovered financially.
Insurers are expected to agree on a basic framework at the Monday meeting, after which the plan will be presented to Germany’s financial-services regulator Bundesaufsichtsamt für Finanzdienstleistungen (BAFin). GDV spokeswoman Gabriele Hoffmann said details of the fund would be released on August 16.
The idea of a joint emergency fund was first floated last month by a group led by GDV. Insurers Allianz AG, Munich Re’s Ergo Versicherungsgruppe AG and AMB Generali have all publicly declared their willingness to partake in any effort to aid the flailing industry.