It will be years before life insurers can offer their customers higher returns again.
(Photo: dpa)
For years, an entire industry has been longing for it, even swearing: Now it’s here, the turnaround in interest rates. And in fact, many German life insurers are now better off financially than in previous years due to rising capital market interest rates. The chances of winning also increase. Gone are the days when Bafin supervisors had to worry about more than a quarter of companies.
However, the industry is about to face the next problems – and they are also indirectly related to the turnaround in interest rates.
The high rates of inflation, which have forced central banks to raise interest rates, are causing many Germans to hesitate, especially when it comes to retirement provision. As a result, almost all providers reduced their expectations of the important new business. In many places one would be happy if the numbers from last year were reached again.
There is no improvement in sight. According to current information, the high price increases are likely to continue to weigh on consumers in the coming year. More and more people are unable to save anything for old age. Even if the message that the statutory old-age pension will not be enough and that private provision is urgently needed has meanwhile gotten across everywhere.
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The persistently high inflation also means that life insurers now have a problem explaining the advantages of their products to customers. If you can currently offer a return of around three percent at best, you will find it difficult to convince your product that its product makes sense with inflation rates of around eight percent.
Life insurance: There will only be higher returns in a few years
This conflict could only be resolved when inflation rates fall. Insurers, on the other hand, have little leeway. They still manage high-yield bonds from previous years in their portfolios. You can now invest them better than before when they come due. However, this is a very long-term process. It will be years before life insurers can offer their customers higher returns again.
In addition to new business, the portfolio of old contracts continues to be a burden. Here, the industry once guaranteed an interest rate of up to four percent – and that for decades. If interest rates now rise, it will be years before things ease up. Until then, many providers will try to part with the unloved inventory.
For the life insurers, this results in a mixed situation that the industry has not experienced for years. The long-awaited turnaround in interest rates could only be the beginning of a turning point for many providers.
More: Life insurers’ solvency reports – key figures are improving, transparency is decreasing