German Insurers Say Schaeuble Amendment Will Scare off Investors

German Finance Minister Wolfgang Schaeuble has deflected complaints from insurers worried that his revamp of how they meet obligations to policy holders will scare off investors, a ministry document released today shows.

Schaeuble’s ministry is preparing a bill to secure the long-term health of insurers amid low interest rates that have sapped their scope to sustain current payout levels. Remedies in the draft include a cut in government-set guaranteed interest payable on policies. The bill also would force insurers that may struggle to meet obligations to forgo dividend payments.

“A general clamp on dividend payments overshoots the aims” of helping the industry, the GDV insurance federation, representing companies including Allianz SE and Talanx AG, said today in an e-mailed statement. “It would sever insurance companies from capital markets.” The ministry document released today summarizes the planned bill.

Insurers have urged Schaeuble to amend a 2008 law that allowed policy holders to draw on insurers’ reserves when contracts mature or are canceled. While upholding consumer interests, Schaeuble has overshot in devising a cure, threatening to choke off investment needed by the industry, said the Berlin-based GDV.

Payouts by insurers soared after the 2008 legislation as interest rates bloated the value of the reserves and yielded windfalls for policy holders. As interest rates moved to lows, companies grew concerned about their long-term ability to meet obligations on policies signed in the higher-interest periods.

Payouts Rise

Life insurance payouts rose to €2.8 billion ($3.814 billion) last year from €1.3 billion [$1.77 billion] in 2010, according to the GDV.

Parallel to the bar on dividend payments, a temporary limit will apply on tapping reserves if the average yield on bonds held in them falls below guaranteed interest payable to policy holders, the bill’s preamble states. Insurers welcomed the move as well as a plan to cut the guaranteed interest to 1.25 percent from 1.75 percent.

The insurance bill, which Schaeuble wants to become law before the summer recess, also obliges insurers to pay 90 percent of profit gleaned from risk allocations in policies, up from 75 percent today. The step will hurt companies’ efforts to amass reserves, the GDV said.