Life insurers and pension funds continue to groan under the low interest rates on the capital market. The number of providers who are under the cover of the Federal Financial Supervisory Authority (BaFin) has increased further. “There are currently around 20 life insurers and around 40 pension funds,” said Frank Grund, head of insurance supervision, the “Tagesspiegel” (Monday). With these providers, BaFin sees a serious risk that they will not be able to fulfill their obligations towards customers in the long term.
This means that around a quarter of life insurers and almost a third of pension funds are closely monitored. BaFin can force providers with weak solvency to take measures to increase their own funds and cushion risks. For this purpose, the insurers must present a restructuring and action plan, the success of which they must report regularly. In the event of failure, the authority can impose further measures and even withdraw permission for the pension business.
Cuts expected in pension funds
Grund expects further cuts to the detriment of customers, especially at some pension funds. “There are pension funds where you cannot rule out reductions in benefits – as we have seen with three pension funds in recent years,” said the lawyer to the Berliner Blatt. BaFin currently has a single-digit number of funds in its sights.
Specifically, in recent years Caritas, the Cologne Pension Fund and the Deutsche Steuerberater Versicherung have had to cut their pensions at the expense of their customers. Current pensions were also affected. Management errors were partly responsible for the imbalance: the insured were simply promised higher pensions than they could generate. The first-mentioned providers had to stop their new business and have been in liquidation since December 31, 2020. This means that BaFin has withdrawn their permission to continue operating the insurance business: old contracts are only processed.
All life insurers can meet obligations
The good news: In the case of life insurance, Grund assumes that all companies can meet their contractual obligations as things stand. “I wouldn’t put it that way with pension funds,” said the chief supervisor. Due to their business model – their benefits consist almost exclusively of lifelong pension payments – pension funds are even more affected by the persistently low interest rates than life insurers, who also sell biometric insurances: and Easier to switch to products with limited warranties.
Many health insurers can only cope with the bottlenecks by borrowing fresh money. According to figures from the federal government, a total of 25 pension funds issued subordinated loans and profit participation rights between 2008 and 2017 alone, for around 455 million euros: current figures are not available. The klamme tax advisor pension fund also went this way. In a much-noticed ruling in June 2021, it obtained that it may also cut the current interest payments to subordinate creditors, since, according to the court, they should not be better off than policyholders in the case of restructuring (Regional Court Frankfurt, Az .: 3-14 O 11/20). Since 2018, Steuerberater Versicherung no longer has enough equity to meet the solvency requirements of BaFin. While this ruling enables the pension funds to reorganize themselves more easily, the situation of the creditors is weakened.
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