By Ulrike Dauer
FRANKFURT--The German government is set to lower the guaranteed
minimum that life insurers must pay to policyholders annually, to
reflect the protracted low interest rate environment. The measure
will, however, contribute to make life insurance policies less
appealing as retirement products in Europe's largest economy.
The German actuarial association, or DAV, Wednesday recommended
new contracts signed from Jan. 1, 2015, will have the guaranteed
minimum cut to 1.25% from 1.75%. The German Finance Ministry, which
sets the annual minimum rate, usually follows the actuarial
association's recommendation.
In Germany, the annual bonus that life insurance policyholders
are entitled to consists of the guaranteed part and a flexible part
paid on top. The flexible part is decided by insurers annually. The
guaranteed minimum payout is calculated based on the 10-year
average of the running yield of European government bonds over the
past 10 years; the guaranteed minimum can't exceed 60% of that.
To even better reflect the current low interest rates, actuaries
also looked at the running yields of the same bonds over the past
five years.
The lower guarantee will contribute to further cut annual bonus
payments policyholders are entitled to, which most German insurers
have already trimmed this year in light of the low interest rates
in capital markets and enhanced capital requirements for the sector
ahead.
As a result of the lower annual returns, German life insurance
policies will become substantially less attractive as long-term
investment for old-age retirement compared with other savings
products that can generate higher returns.
In the past, Germans favored life insurance policies as pension
products with stable annual returns. At the end of 2012, about 81
million Germans owned 93 million life insurance and pension
plans.
Write to Ulrike Dauer at ulrike.dauer@wsj.com; Twitter:
@UlrikeDauer_
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