Regulators are so concerned about the ability of Austria's life insurers to meet promises made to consumers that they are requiring them to build up further provisions, equivalent to about a fifth of their profits.
The move echoes similar steps taken by regulators in Germany and comes as investors and industry executives fret about the risks posed by insurers offering high minimum returns as their investment portfolios remain under pressure.
The European life insurance industry writes annually more than €400 billion worth of “non-linked” life business, under which the companies rather than consumers bear investment risk.
In a statement on Tuesday, the Austrian Financial Market Authority said it estimated the total cost to life insurers for setting aside additional reserves would be between €75-80 million for this year alone. It said the measures were precautionary and were not being taken in response to any particular concerns about the financial health of any individual insurance company. “This measure ensures that the liabilities of life insurance contracts can always be met, including in periods of persistently low interest rates", FMA said in a statement.
The level of the additional reserves vary by insurance company. “Insurers with a high average promised return will have to build up higher reserves than those with lower guarantees", the regulator added. “The allocation to the reserves may not be completed at the expense of insurees.”
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