Life insurers feel lower demand in 2022

detached house

Insurers can grant real estate loans with long fixed interest rates.

(Photo: dpa)

Frankfurt When it comes to real estate financing, consumers do not think of life insurers first. But despite the more difficult market environment, the industry paid out more construction loans in 2022 than in the previous year. The financing volume for housing loans increased by 2.3 percent to 8.8 billion euros, the General Association of the German Insurance Industry (GDV) announced on Wednesday. “In view of the trend reversal on the real estate market, this is a good result,” says GDV General Manager Jörg Asmussen.

However, the numbers were still well below those of 2020, when life insurers had paid out housing loans of ten billion euros.

The industry justified the slump in 2021 with the corona pandemic and the associated delays in construction activity. Loans that had already been approved were later drawn down – which is now likely to be reflected in the slightly increasing number of loan payments in 2022.

The financing commitments of the life insurers amounted to almost nine billion euros in 2022. That was only slightly less than in the previous year, when they were 9.2 billion euros. Nevertheless, the rise in interest rates and the declining demand for real estate made themselves felt in the loan books: the insurers approved the majority of the commitments of 6.3 billion euros in the first half of the year.

In the second half of the year, there was a slump to just 2.7 billion euros. “The rising interest rates have significantly slowed down new business over the course of the year,” Asmussen continued.

Life insurers have expanded construction loan business in the low-interest phase

A GDV spokesman explained when asked by the Handelsblatt that the number of new term life insurance policies contracted had also declined slightly in 2022. Many consumers take out residual debt or term life insurance as part of the construction financing, also because the banks require this in certain cases as a prerequisite for lending.

>> Read here: Life insurance – consumers have so far hardly benefited from the rise in interest rates

At the same time, the GDV spokesman emphasized that there are other motives for taking out such policies, so that the development in real estate financing only partially affects the business with term life insurance.

Traditionally, life insurers mainly finance private homes or condominiums. However, their share of total loan commitments fell from 84.6 percent to 77.6 percent last year – and was thus the lowest it had been since the mid-1990s. According to GDV, however, the share of larger apartment buildings in the financing volume rose to a record level.

proportion shrunk

77.6

percent

of loans committed by life insurers were for private homes or condominiums in 2022 – the lowest figure since the mid-1990s.

In a long-term comparison, life insurers’ mortgage business remains high. In the prolonged phase of low interest rates, many providers had broadened their investments in search of returns. Instead of investing primarily in low-interest government bonds, they expanded the real estate financing business, among other things.

>> Read here: The construction industry lacks the money – 43 percent fewer new applications for financing

Life insurers see their advantage in being able to give consumers loans with very long fixed interest rates of 20 or even 30 years. This is due to the fact that the customer funds from the life insurance contracts are also available to them in the long term. Many banks, on the other hand, often find it difficult to fix interest rates for such a long time because they have to refinance the business through short-term customer deposits.

Nevertheless, life insurers play a subordinate role in residential real estate financing: According to the Association of German Pfandbrief Banks, the market share of life insurers in 2021 was 2.9 percent. For comparison: the savings banks accounted for a share of 33.2 percent and the Pfandbrief banks affiliated to the association – excluding savings banks and building societies – a share of 31.4 percent.

More: Should those interested in real estate strike now?

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