(Bloomberg) — German life insurers, including units of Allianz SE and Assicurazioni Generali SpA, will be able meet guaranteed returns promised to customers for a prolonged period of low interest rates, Fitch Ratings said.
"There is considerable pressure on the ability of life insurers to earn a good return on their investments, but Fitch expects rated German life companies to meet policyholders' guarantees," Fitch analysts Stephan Kalb and Christoph Schmitt said in a report published today in which the ratings firm "has simulated run-off scenarios with different assumptions."
The German life-insurance market, Europe's third largest after the U.K. and France with about 87 billion euros ($108 billion) of premiums, has traditionally featured guaranteed returns that were as high as 4 percent for policies sold in the second half of the 1990s. It has become increasingly challenging to meet these obligations amid falling interest rates on fixed-income assets, where insurers invest the majority of their customers' premiums.
As a response, life insurers such as Allianz Lebensversicherung, Ergo Lebensversicherung, a unit of Munich Re's primary insurance subsidiary, and Axa Lebensversicherung have introduced new products that rely less on guarantees.
"Due to the importance of guaranteed credit rates on German insurance policies, low interest rates are viewed by Fitch as the biggest challenge faced by the German life insurance sector," the ratings firm said.
