Some German insurers may fail in the wake of tough new European capital rules for the industry which are due to come into force in 2016, Germany's top insurance supervisor said.
"I'm not sure that all insurers will make it", Felix Hufeld, head of insurance at German watchdog Bafin, told a conference at the University of Frankfurt late on Tuesday.
Germany's life insurers are suffering in the current environment of rock-bottom interest rates and could fail to build up an estimated €3-5 billion in extra capital per year needed to meet the new rules known as Solvency II, he said. However, it is the raft of smaller, non-stock market listed insurers that are seen as facing the biggest challenge under Solvency II.
Many German life insurers have a large stock of insurance savings policies carrying guaranteed interest rates of up to 4 per cent, which they will have to pay policy-holders for decades to come, a tough task when the current benchmark yield on 10-year German government debt is only 1.7 per cent.
Germany has a backstop life insurance company called Protektor Lebensversicherung AG in place to protect policy holders in case an insurance company becomes insolvent.
The European Commission, the European Parliament and EU member governments reached agreement on final details of the Solvency II rules earlier this month, in a deal that some EU politicians criticised as caving in to industry interests. The agreement gave Germany something it wanted, a 16-year transition period to help life insurers deal with their back book of guaranteed policies, but Hufeld said insurers would need to make strenuous efforts to meet Solvency II's terms.
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