The solvency ratio is an important benchmark for insurers’ resilience.
(Photo: dpa)
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Frankfurt According to GDV calculations, the capital buffers of German life insurers have increased significantly over the past year due to the gradual rise in interest rates. The solvency ratio has risen from 199 percent to 245 to 255 percent, said Uwe Ludka, who chairs the financial regulation committee at the industry association, on Friday in Berlin.
Including the transitional measures that expire by 2032, it is even 450 to 460 percent. In the previous year it was still 376 percent.
According to GDV, the situation has eased significantly. “As the life insurance industry, we have adapted to the environment,” said Ludka. The additional interest reserve of 98 billion euros built up within ten years has contributed to this, as has the conversion of new business to products with fewer guarantees.
However, life insurers cannot rest on their laurels. The European insurance regulator Eiopa recently gave the national supervisors new recommendations for action. Accordingly, they should ensure that insurers reduce their sometimes strong dependence on the transitional measures.
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The solvency ratio is an important benchmark for insurers’ resilience. It indicates the extent to which they could fulfill their promised services even in a negative scenario, such as the one that hits the industry mathematically every 200 years.
The German life insurers are particularly burdened by the more risk-oriented Solvency II rules of the EU, which have been in force since 2016, because of their long-term guarantee commitments. Even though many providers have switched their new business and are now also relying on fund policies without guarantees, they often still have large old portfolios on their books.
Some providers are under intensified supervision
Without the transitional measures that were created when the rules were introduced, the rate for numerous providers is still not above the required 100 percent. These providers are under intensified supervision by the Bafin and must submit action plans on how they intend to meet the requirements by the end of the transitional measures.
If they don’t manage to do this, this could mean that they are no longer allowed to write new business. According to the Bafin, there is still no specific case. However, the authority does not rule out the possibility that this could happen in the future.
The German property and casualty insurers are in a better position without the transitional rules: Despite the billions in damage caused by the flash floods in western Germany and hailstorms, the GDV gives its solvency ratio for 2021 at 265 to 270 percent, after 285 percent in the previous year.
The EU Commission is currently working on a reform of Solvency II. According to the GDV, it would hit German life insurers much harder than insurers in other European countries because of the long-term nature of their old-age provision business.
>>Read also: How life insurers can hold their own against digital competitors
Above all, the EU wants to tighten the setting of long-term interest rates, with which companies have to calculate their services. Because for maturities of 20 years and more there are hardly any papers on the market that you can use as a guide.
While insurers across the EU would be relieved of eight billion euros as a result of the reform, according to Ludka, German life insurers are threatened with additional capital requirements of a similar amount. The GDV is therefore pushing for changes.
The EU Parliament is expected to deal with the reform before the end of this year. In the best-case scenario, the new regulations could be in place at EU level by mid-2023. The member states then have 18 months to transpose them into national law. The insurers would have to apply them for the year 2024 at the earliest.
With agency material
More: Zurich and Axa want to sell old portfolios to life insurance companies.
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