Posted on Jun 22, 2012 by Sergio Ulloa
Despite many other European insurers straying away from traditional guaranteed-return saving insurance policies, Allianz Leben's, the company's German insurance unit, chief executive, Markus Faulhaber said that the company remained committed to traditional life insurance plans that offer guaranteed returns to holders. Speaking to the Financial Times Deustchland, Faulhaber said that "the criticism of the life insurance policy based on the traditional backup capacity is unjustified."
Faulhaber's comments come on the back of the European Insurance and Occupational Pensions Authority (EIOPA) releasing their biannual financial stability report. The report surveyed 20 of Europe's biggest insurers and revealed that premiums from 'traditional' life insurance products fell by ten percent in 2011.
All of this comes at a time where European life insurance firms are experiencing incredibly low interest rates. In previous years, interest rate guarantees on contracts were, on average, 3.3 percent higher than they are now. Due to these low interest rates in the capital market combined with tough new capital rules, many insurers are finding it harder to make enough to cover the guaranteed payments they owe to their clients.
While remaining supportive of traditional methods, Faulhaber did admit that Allianz's life insurance unit is testing out new products slated to be released in mid-2013. While not divulging any specifics, Faulhaber did mention offering levels of guarantee that the client would be able to adjust at different points during the policy's life span was a possibility. Speaking on the idea, he said that it would "be very attractive to a customer who expects that in 20 or 30 years interest rates, including the guaranteed interest rate, will be higher than they are today."
In spite of the financial climate, Faulhaber believes Allianz are in a relatively strong position thanks to its "financial strength and low administrative costs" While Allianz's competitors are spending approximately 2 to 3 percent on administrative costs, he stated that the German company was only spending 1.1 percent.
Throughout the past five years, Allianz Leben's market share has increased from 16.3 to 17.5 percent and despite low interest rates and challenging times, Faulhaber remains adamant that the company can "meet all the guarantees for our customers."
While revealing the decline of the traditional insurance premium, the EIOPA report showed that premiums from Unit Linked Insurance Plans (ULIPs), where the client holds the investment risk, have risen by three percent. It also reported that the average solvency ratio, basically a measure of capital strength, reduced from 211 percent in 2010 to 199 percent in 2011. The EIOPA concluded from the report that "the relatively positive development of insurers experienced in recent years has started to reverse."
Low interest rates and solvency ratios aren't the only things that have European life insurers concerned. The Solvency II proposal currently making its way through the European Parliament
is causing many, including Faulhaber some worry. Claiming that the "currently proposed rules are not sufficient", he went on to say that "unless it is substantially changed, Solvency II will lead to very strong swings up and down in the capital needs of life insurers."
Insurance Firms Mentioned
German company, Allianz are the world's 12th
largest financial services group in the world. Formed in 1891 it specializes in insurance but also deals with other financial services.