12 November 2014

Reuters: Most German insurers prepared for new capital rules

Bafin looked at the country's 87 life insurers to see how they would hold up if the new rules, known as Solvency II, were already in effect. Insurers will have 16 years to adapt to the rules from Jan. 1, 2016.

Only a few life insurers with a combined market share of less than 1 percent fell short on capital and Bafin will start talks on corrective measures with them immediately, it said in a statement on Wednesday.

"If the low interest rate phase persists, life insurers will need to make considerable efforts to strengthen their capital base during the 16-year transition phase," Felix Hufeld, in charge of insurance supervision at the watchdog, said.

If Solvency II were already fully in effect as of Dec. 31 2013, the reference date for Bafin's review, about 25 percent of companies with a market share of 10 percent would have fallen short of requirements. That number probably would have grown in the meantime given the decline in interest rates, Bafin said. Under current market conditions, the capital shortfall would be around 15 billion euros ($19 billion), Bafin said.

The review showed that insurers need to be prepared for volatility in their capital position, which is sensitive to changes in prevailing interest rates under the new rules.

The Bafin survey highlights problems rock-bottom interest rates are creating for insurers' business models, Ralf Bender, an analyst at credit rating agency Standard & Poor's, said. "Generating capital internally through earnings is more difficult in a low interest rate environment," Bender said. "Closing an existing capital shortfall might be easier if you are part of a larger insurance group or if you can access capital markets by issuing hybrid capital," he said.

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