06 February 2014

German insurer capital needs may top €10 billion by 2016 - BaFin

Germany's insurers may need to build up more than €10 billion in extra regulatory capital by 2016 to meet requirements under Solvency II, the country's top insurance regulator said.

Mainly translated from the German

The head of insurance supervision at financial watchdog BaFin, Felix Hufeld, told Börsen-Zeitung (subscription) in an interview that he was expecting further billions to be needed by German life insurers. Reason for this were the requirements at the start of Solvency II and the low interest rate environment, Hufeld said. The additional interest reserves required since 2011 would again be a hefty burden for the insurance industry this year. He anticipated that the industry would have to raise about six billion euros, like in 2013, reports börse-online.

However, Hufeld said that the insurance companies only bought temporary stability with the additional interest reserve. He saw another challenge in the new equity rules under Solvency II. Although life insurers had a long transition period of 16 years before requirements were binding, they still had to have a certain amount of additional own funds come January 2016. "That could be a double-digit billion euro amount in extra regulatory capital", he said.  

Big insurers like Allianz, Axa or Generali are well prepared for the rules, which require vast technical improvements in assessing and reserving for risks, but many smaller insurers are struggling to cope, reported Reuters. Even though Hufeld had said late last year (as reported by börse-express) that some German insurers may fail after the rules are introduced, to Börsen-Zeitung he said he believed that no German insurer was poorly prepared for Solvency II. "We do not feel that significant parts of the industry have not heard the wake-up call." The regulatory framework which took more than 10 years to develop and is more focused on the risk of the investments could lead to profound changes in the industry. "For the life insurers, it is a catalyst for offering a more differentiated product portfolio", Hufeld is quoted by manager magazin.

According to Reuters, BaFin plans to ask Germany's life insurers to do an "as if" calculations this summer to see how well they would comply with the Solvency II rules, which would give the watchdog better insight into any regulatory capital shortfall. "That doesn't mean that insurers must fulfil the solvency requirements already in 2014 or 2015 but we do need to be clear about where we stand", Hufeld said. 

He further warned that customers had to expect that some insurers might face resolution - previously a taboo. "An exit from the market must be possible, also for life insurers", he said. "It is not the task of the BaFin, to prevent the failure, but to make it more tolerable for those affected."