Frankfurt Life insurers have longed for rising interest rates for years. This way they can invest their customers’ money again on better terms. However, this has by no means solved all of the industry’s problems: Existing capital investments are losing value in the current market environment, the costs of many products are regularly criticized and high inflation makes it difficult for many people to provide for old age. For many customers, the question of how stable the German life insurers are is all the more important.
Life insurance is still the most popular private old-age provision in Germany. In total, Germans have around 83 million current contracts, according to figures from the GDV industry association. So how well are the big providers financially equipped? A new study by the Institute for Financial Economics at the Ludwigshafen University of Applied Sciences on the twelve largest life insurers in Germany active in new business provides evidence of this.
>> Read here: The Germans’ love of life insurance is cooling off – for these six reasons
The analysis includes an economic assessment made up of key figures on earning power, operating costs and risk result, valuation and loss reserves. In addition, the author, Professor Hermann Weinmann, gives a consumer grade, which also takes into account the participation of the insured in the results and the solvency ratio, a measure of the weather resistance of insurers in extreme situations.
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Grades range from “very good” to “just enough”
The results are therefore different: Four insurers received the grade “very good” to “good”, three others cut off “satisfactory”. Four providers are rated “sufficient”. But one insurer just manages to get a verdict of “just enough”.
As in previous years, Allianz Leben was at the top of the business evaluation with 750 out of 1000 points. The market leader had significantly lower premium income in 2021 because, according to its own statements, it “deliberately refrained from doing certain business for a single premium”. However, Allianz Leben is still characterized by relatively low operating costs and high valuation reserves in the investments.
Allianz shares the label “very strong” in business terms with Axa Life. The German subsidiary of the French insurance giant stands out, among other things, due to its strong earning power, measured by the investment income compared to the average investment portfolio.
When it comes to consumer interests, however, Allianz Leben is in a better position. According to the analysis, it gives its customers a slightly larger share of the gross surplus and total income. Allianz Leben is the only company to receive the consumer grade “very good” (1.3).
Axa Life gets the grade “good” (2.0). Weinmann believes that worse participation rates are typical before a so-called run-off, i.e. the sale of life insurance portfolios to an external processing company. In July 2022, Axa announced it would sell 900,000 policies to liquidator Athora.
Analysis criticizes high profit transfer before run-off
Zurich Deutscher Herold, which is in the middle of the twelve life insurers with 500 points and a consumer rating of “sufficient” (3.7), is also getting rid of old portfolios. From a total of around three million life insurance contracts, around 720,000 policies go to the processing specialist Viridium, as Zurich announced in June.
Weinmann complains that the profit transfer at Zurich Deutscher Herold has quadrupled in the past year. As a result, the insured only received 69.2 percent of the gross surplus – instead of 91.1 percent in 2020.
A Zurich spokesman emphasized that there was no connection with the inventory sale. In the past, too, years with a lower proportion of policyholders in the gross surplus regularly alternated with years with a very high proportion.
Allianz life insurance is at the top of the business evaluation.
(Photo: dpa)
Axa also said the assumption that money had been siphoned off before the run-off was incorrect. 2021 was a normal year. In 2020, on the other hand, the investment income would not have been sufficient to finance the actuarial interest rate that was necessary for the guarantees. In order to fill the gap, funds from other sources of income would have had to be used, which meant that less profit transfer to the group would have been possible.
However, other life insurers stand out more positively here. Generali Deutschland Leben gives the insured a 95.6 percent share of the gross profit – that is the top figure in the industry. The rate is also 94 percent for Württembergische Leben and over 90 percent for R+V Leben and Nürnberger Leben.
Weinmann also rates the Nürnberger and the Württembergische as economically “strong”. Without deducting consumer interests, the Nürnberger received the consumer grade “good” (1.7), the Württembergische the grade “good” (2.0).
Alte Leipziger Leben and Debeka Leben came out best among the five life insurers with “limited strength” from an economic point of view. The Alte Leipziger received the consumer rating “satisfactory” (2.7). Due to its weaker, albeit significantly improved solvency ratio, which indicates the ratio of existing to required own funds, Debeka Leben comes to “satisfactory” (3.0).
Although R+V Leben is behind Zurich Deutscher Herold and Cosmos Leben in the business evaluation, the Wiesbaden company receives the better consumer grade “satisfactory” (3.3) due to the higher participation, while Cosmos Leben like Zurich Deutscher Herold with “sufficient” ( 3.7) is evaluated.
Generali Deutschland Leben provides the insured with a maximum of 95.6 percent of the gross surplus.
(Photo: dpa)
The study, on the other hand, classifies Bayern-Versicherung and SV Leben as economically “relatively weak”. Together with R+V Life, they have the weakest earning power in Weinmann’s comparison. Both are without deduction in the consumer interests and therefore also achieve the grade “sufficient” (3.7).
Finally, there is Generali Deutschland Leben, another economically “weak” insurer with a consumer rating of “just about adequate” (4.3). The reasons are the declining earning power and the still high operating cost ratio of 16.7 percent. At Cosmos Leben, which also belongs to the Generali Deutschland Group, this is only 4.8 percent.
A spokesman for Generali Germany emphasized that the values determined in the study are of “comparatively less important” for the company, since instead of classic life insurance with guaranteed interest rates, they rely heavily on fund policies and biometric products such as disability insurance. Weinmann rates the strong new business and the high solvency ratio of Generali Deutschland Leben positively.
The consequences of the rise in interest rates will become more visible in the future
With the rise in interest rates, all life insurers now have a solvency ratio of over 100 percent, as Bafin supervisor Frank Grund recently emphasized. The solvency ratio is an indicator of the financial reserves. If a company is permanently worse than 100 percent, it would be considered vulnerable and call the Bafin on the scene.
>> Read here: The gap between strong and weak life insurers is widening
However, further consequences of the rise in interest rates could become visible in the balance sheets for 2022 next spring. There are simplifications for the additional interest reserve (ZZR), which life insurers had to build up in order to be able to meet their obligations over the long term even in the low-interest phase. Some providers could already start dissolving the ZZR again.
However, Weinmann does not rule out write-downs on low-interest bonds held by insurers. The current losses in market value are not a problem as long as the securities are held to maturity. But that will probably not be possible in all cases, says the insurance expert.
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