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New German life insurance law?

March 10, 2014

Germany's grand coalition government has said it aims to compile a package of measures to help struggling national life insurance companies. Current record-low interest rates have put them in a bind.

https://p.dw.com/p/1BMm6
Filling in an insurance policy
Image: picture-alliance/dpa

The government in Berlin was willing to support life insurance companies suffering from the current environment of extremely low yields, parliamentary undersecretary in the Finance Ministry Michael Meister said on Monday.

"We are aiming to achieve a long-term and comprehensive stabilization of the life insurance business," he said in a statement. Meister added that required legislative changes would focus on arriving at a "fair deal" between investors and insurance holders.

In its 2013 Finance Stability Report, the German central bank confirmed current low interest rates had been weakening life insurance firms, with new contracts securing only miserable yields.

Deal before summer recess?

In the focus of planned alterations were insurers' reserves from fixed-rate bonds which under current law had to be partly distributed to clients, a report by the "Süddeutsche Zeitung" daily said.

It also said the government might change the rules for granting commissions and might also lower the current guaranteed interest rate on investments from 1.75 percent at present to 1.25 percent.

Is the ECB's low interest policy poison for Germany's savers?

In addition, the federal financial supervisory agency, Bafin, may be given greater powers in monitoring life insurance companies' products.

The report argued that insurance holders whose contracts expired this year or who cancelled their policies could together lose up to two billion euros (42.78 billion) as a result of a new law, with the government expected to announce more detailed plans no later than April.

hg/kms (dpa, Reuters)