FRANKFURT (dpa-AFX) - Many life insurance customers can hope for rising interest rates on the classic old-age provision in the coming years, according to financial regulator Bafin. "I already expect surplus participation to rise across the board, depending of course on the situation on the capital market as a whole, including the stock and real estate markets," Germany's top insurance supervisor Frank Grund told news agencies dpa and dpa-AFX. The first insurers, including industry leader Allianz Leben, have already raised their 2023 bonuses. However, many companies are still leaving them unchanged.

Life insurers set the surplus participation each year anew, depending on the economic situation and the success of their investment strategy. In addition, there is the maximum actuarial interest rate, also known as the guaranteed interest rate. Following a decision by the Federal Ministry of Finance, this has been set at 0.25 percent for new contracts since the beginning of 2022. Old contracts yield significantly more. Both form the current interest rate, which refers only to the savings portion after deduction of, among other things, acquisition and sales costs.

Grund does not expect life insurers to take high guarantees onto their books again on a grand scale. "We have seen the risks of high guarantees. I don't think anyone is likely to do that anymore." The industry has barely been able to generate the interest rate promises from old contracts of up to 4 percent in the interest rate slump on the capital market. For some years now, the vast majority has only been offering new customers products with slimmed-down guarantees.

Grund considers a renaissance of classic life insurance policies with a full guarantee to be difficult to imagine. "The market has painstakingly learned how expensive guarantees are. I don't think anyone will go back that way voluntarily. There are many interesting alternatives with opportunities for the customer."

Much of insurers' money is in comparatively low-yielding government bonds from years past. Their value has fallen because of the recent rise in interest rates. Hidden burdens are emerging on the balance sheet. If insurers are forced to sell these securities before maturity, they would have to write down the value accordingly. This would put a strain on the balance sheet.

In addition, there is inflation, which could have consequences for current business, according to the insurance supervisor. "Companies should be prepared for new customer business not going as planned." Cancellations of existing policies or premium waivers by customers also cannot be ruled out, he said, because consumers need money for other things. "However, we are not yet seeing the very big wave of cancellations. Nevertheless, companies should ensure sufficient liquidity management."

At the moment, according to Grund, 15 of the total of about 80 life insurers are under intensified supervision. "I expect that number to drop significantly in the foreseeable future," the Bafin executive director said. At present, he said, no life insurer needs to take advantage of the transitional measures of the European supervisory framework Solvency II anymore. Rather, the companies are already complying with the requirements that will become mandatory from 2032.

According to Grund, the situation of pension funds remains more difficult. "For a good 30 of the more than 130 funds, we are somewhat more intensely concerned." According to the insurance supervisor, pension funds could benefit more from rising interest rates in the medium term if funds that are released are reinvested at higher rates./mar/DP/men