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This led to great irritation

Provider under pressure

According to the «Financial Times Deutschland» (FTD), the insurers charge guaranteed interest rates of sometimes four percent in old contracts, while new customers are currently granted a guaranteed interest rate of just 1.75 percent. The catch lies in the obligation of the providers to invest the contributions of their customers in particularly safe investments.

In 2011, insurers would have put 80 percent of the money – 1.3 trillion euros – in bonds such as government bonds, mortgages, loans, Pfandbriefe or corporate bonds, according to the Handelsblatt report. Now the lean interest these products generate is becoming a problem.

Debate about crisis aid

The result: companies have to pay their customers more than they take in. The Ministry of Finance summarizes the catastrophic situation according to the «Handelsblatt», according to the «Handelsblatt», when a «significant number of companies have less risk-bearing capacity» by 2018 at the latest.

Together with the financial supervisory authority BaFin, the ministry is therefore discussing how to give insurers room for freedom by lowering or temporarily suspending the guaranteed interest rate. A good solution for companies that are in a faltering situation, a bad one for those insured who would get lower interest rates than agreed. According to the information, some insurers are already considering applying to BaFin to temporarily suspend their interest promises.

A law to stabilize insurers is to be passed in the Bundestag on Thursday evening. It gives companies the option of valuing their assets differently than before, so that they have to pay less money to their customers.

Consumer advocates criticize state aid

Consumer advocates, on the other hand, reject state aid for insurers. «It is not the job of politics to provide insurers with targeted subsidies so that they can continue to generate high profits in old-age provision operations even in times of low interest rates,» explained Niels Nauhauser from the Baden-Württemberg consumer center.

The insurers have meanwhile rejected reports of their imminent imbalance. «The message that more and more life insurers can no longer pay the guaranteed interest in full is wrong,» said the Association of the German Insurance Industry (GDV). German life insurance is safe. The persistently low interest rates are a major challenge. But there is no reason for alarmism.

Ranking of the strongest insurers

For insured persons it is more important than ever to choose a financially strong provider, says Christoph Dittrich, managing director of the Hamburg analysis company Softfair of the «WirtschaftsWoche». Softfair, together with the Viennese financial scientist Jörg Finsinger, determined for the magazine which life insurers offer their customers low costs, high returns and sufficient capital.

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72 providers were scrutinized for the ranking, with LVM, Huk-Coburg and Debeka doing particularly well. For example, test winner LVM is 145 percent more powerful than the average of all competitors. In contrast, Direct Life, Delta Lloyd and VPV da achieved particularly poor results.

The low interest rates also put a strain on private old-age provision: the providers of life insurance and thus also the insured have to accept losses. For new contracts, other models without an interest rate guarantee are now being discussed.

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Guaranteed interest below inflation rate

German life insurance is still considered safe.123helpme.me But the return is no longer there. Almost all providers from Allianz to Zurich are canceling the so-called profit sharing for their customers in the new year, because the interest rates that were once expected can hardly be earned on the financial markets. The guaranteed interest rate doesn’t even compensate for inflation on new contracts. Is that why classic life insurance is becoming obsolete? Insurers have long been working on alternatives that will come onto the market in 2013. The products are likely to bring one thing above all: less security.

Customers lose track of things

German life insurance is a complex structure. The total return is made up of the guaranteed interest rate, ongoing profit participation, final profit and the participation in the valuation reserves. Customers quickly lose track of things, especially since the interest is not calculated on the contributions, but only on the savings portion that remains after deducting the costs for administration, sales and death protection. How much that is varies considerably depending on the provider.

Interest rate falls

This also applies to the surpluses. In 2013, customers of the Swiss insurer Zurich can only expect a current interest rate of 3.0 percent if they do not have an old contract with an interest rate guarantee of 4.0 or 3.25 percent. This means that Zurich is currently at the bottom. But market leader Allianz is also cutting the current interest rate from 4.0 to 3.6 percent. Customers of DEVK or Europa-Versicherung can count themselves happier – in 2013 they still had a four before the decimal point.

Added to this are the final profit and the shares in the valuation reserves. But these are only credited to the contracts at the end. In addition, politicians are currently still arguing about how much reserves the insurers may keep in future so as not to get into trouble themselves.

Expert advises against new life insurance

«Customers should not take out any new life insurance policies now,» warns Axel Kleinlein, head of the Association of Insureds (BdV), in the «Tagesspiegel». For contracts that have been concluded since the beginning of 2012, the guaranteed interest rate is only 1.75 percent. In the worst case, it can take decades before the contract has even reached the value of the contributions paid.

Nonetheless, guaranteed contracts are still the bestsellers in the industry. «Since the outbreak of the financial market crisis, we have seen a continuous shift in favor of classic life insurance,» summed up the long-standing chairman of the GDV insurance association, Rolf-Peter Hoenen, when he left in November. In 2008, 59 percent of new life insurance customers opted for a classic contract, in 2012 it was 76 percent.

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New contract models without permanent interest guarantees

Many insurers would be happy if they could get rid of expensive guarantees. In the phase of low interest rates, they will have to set aside billions in total in order to be able to meet their obligations in the future. In the course of the new «Solvency II» regulations, they are also threatened with stricter capital requirements. The industry has long been working on contract models in which the interest is only guaranteed for the first 10 or 15 years of the contract term. The previous unit-linked contracts without a guarantee could hardly be sold, says Christian Badorff, insurance expert at the Standard rating agency Poor’s.

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Resistance to the new plans comes from consumer advocates. «The implementation of the time limit would mean the definitive end of the classic capital-forming life insurance,» judges the BdV. If the interest rate can be set again after 15 years, this is another uncertainty for policyholders. And another adjustment screw with which companies could turn the profit sharing of their life insured persons.

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Classic capital life insurance was the Germans’ favorite form of investment for old age. Was. Because the confidence of Germans in life insurance has been shaken. According to an Emnid survey on behalf of «Bild am Sonntag», 69 percent of German citizens would no longer take out such insurance today. Only 29 percent would continue to do so.

The Germans are also skeptical when it comes to the question of whether insurance companies will pay out the once promised life insurance benefits in full: 66 percent do not believe that they will be paid out in full. Only 23 percent are confident about this. Emnid interviewed 504 people nationwide.

The Federal Ministry of Finance no longer rules out financial problems for insurers

Because of the current low interest rate policy of the European Central Bank, the Federal Ministry of Finance no longer rules out that individual life insurers could run into financial problems. The first life insurers are considering applying to the financial supervisory authority BaFin for a temporary suspension of the actually inviolable guaranteed interest rate (currently 1.75 percent, for older contracts up to four percent). Even a further decrease is not ruled out.

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Hardly any more good returns can be achieved

In addition to savings accounts and real estate, life insurance is still one of the classic forms of provision for Germans. But insurers are finding it increasingly difficult to generate good returns and pass them on to customers. A spokeswoman for Talanx AG (including HDI Leben, Targo Leben) said: «The politically desired low interest rate policy for restructuring banks and state budgets is being carried out on the back of people who take responsibility for their retirement provision financial security for pensioners, the expansionary monetary policy must come to an end in the medium term. »

Millions of people in Germany are insecure: They believe that the federal government is more concerned about the economic future of life insurers than about theirs. It was not until November that the Bundestag decided to exonerate life insurers. That could mean discounts of thousands of euros for the insured. Now the government is turning a little. The consequences for the insured are to be limited with a hardship rule.

As reported from government circles, Finance Minister Wolfgang Schäuble (CDU) wants to ensure in the short term by ordinance that insured persons do not have to forego an excessive amount of money when paying out their policies in 2013 or 2014. This should avoid «substantial losses», it said.

Many insured people have to be content with less money

According to the resolution of the Bundestag, the participation of the insured in the currently particularly high valuation reserves for fixed-income securities will be limited from December 21st. The aim is to stabilize the life insurers suffering from the low capital market interest rates and to secure their provisions for the disbursements of coming years. As a result, however, many insured persons with expiring or canceled contracts have to fear that they will receive noticeably less money.

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With the hardship regulation, the reduction in participation is now to be capped. This means that insured persons would have to accept a maximum loss of five percent when paying out their policy, it said. At most in individual cases, the discounts would be higher. Exact figures are not available because the tariffs and the terms of the individual insurance contracts are just as different as the insurance companies’ valuation reserves.

Cancel life insurance?

The new legal regulation had caused great unrest among insured persons, especially since some life insurers had advised their customers to terminate their contracts before the reform came into force. The model calculations presented were based on the – incorrect – assumption that customers would no longer participate in the valuation reserves, according to government circles. This led to great irritation.

When a life insurance policy is paid out, the guaranteed benefit, the profit participation and the participation in the valuation reserves are all taken into account. According to government sources, the valuation reserves make up around five percent of the total volume. As a result of the new regulation, individual customers had to fear that they would lose several thousand euros – especially if the payout falls during the ongoing low interest rate phase.

Low interest rates

The reason for this is the fact that the valuation reserves for fixed-income papers are currently particularly high given the low interest rates. Years ago, many securities were issued at much higher interest rates than they are today. If the corporations had to sell these papers today in order to meet the demands of customers, they would be forced to buy papers with significantly lower interest rates afterwards. This must absolutely be prevented.

The government indicated that the original legislative plans were based on 2011 figures. In the meantime, however, the situation has changed. An audit showed that, as a rule, discounts between five and six percent should be expected if you do not intervene. The ordinance is to be submitted to the Federal Council this Friday so that it can be used at the same time as the law on 21.