For years, low interest rates gnawed at private pension schemes. Now interest rates on the capital market are rising again. However, it is questionable whether life insurance customers will benefit from this on a larger scale.
The long slide in interest rates for life insurance seems to have come to an end. According to industry experts, it will be a while before the old-age provision classic makes significantly more money again, despite higher interest rates on the capital market. "The downward trend in the current interest rates of private pension insurance should be over," expects Lars Heermann from the rating agency Assekurata. "The majority of life insurers should keep the current interest rate stable and wait and see."
Assekurata anticipates a slight increase in the current interest rate from the current 2 percent to around 2.10 percent in the coming year for classic private pension insurance policies. According to Heermann, it could be a little more for newer life insurance products with a reduced guarantee, which are now almost exclusively offered. He assumes an increase from the current 2.05 percent to an average of around 2.20 percent. "These are not huge leaps, but it is at least a trend reversal after falling interest rates in recent years." The expert considers a large-scale increase in current interest rates to be unlikely in the coming years as well.
The current interest on classic life insurance consists of the guaranteed interest rate, which has been only 0.25 percent for new contracts since the beginning of 2022 according to a decision by the Federal Ministry of Finance. Old contracts still yield up to 4 percent here. In addition, there is the profit participation that life insurers set every year for all contracts depending on the economic situation and the success of their investment strategy. Current interest only relates to the savings portion after deducting acquisition and administration costs, among other things.
Consumer advocates have criticized the costs for years as too high. "The acquisition and sales costs are the largest block of costs. With every reduction in the guaranteed interest rate, we have demanded that the costs have to go down first," reports insurance expert Lars Gatschke from the Federal Association of Consumer Organizations (vzbv). For the time being, he too does not expect interest rates on life insurance policies to rise on a larger scale.
In his view, one reason is the capital buffer (additional interest reserve) that the insurance companies had to build up during the lull in interest rates in order to fulfill the high promises made in the past. "In order to build up the additional interest reserve, the insurers sold their silverware, now the books mainly contain low-interest fixed-interest securities that hardly yield anything."
Due to the rising interest rates on the capital market, so-called hidden burdens have also arisen in the balance sheets of life insurers, which Heermann currently estimates at around 50 billion euros. The companies do not have to dismantle them. However, the hidden burdens limit the flexibility of insurers' investment strategies because they tie up capital. "I could imagine that the relief in the additional interest reserve will initially be used to reduce hidden burdens."
In his estimation, the capital buffer should be fully funded at almost 100 billion euros by the end of 2022 thanks to the rise in interest rates. "This year, around 3 billion euros should be released from the additional interest reserve, in the coming years it should be around 4 to 5 billion euros a year, provided that interest rates on the capital market do not fall."
Heermann believes that the sharp rise in inflation will dampen demand for old-age provision products. "Life insurers will feel the effects of disposable income in new business." New business had already declined in the second half of the year. "Government relief measures such as the gas and electricity price brake will not result in customers buying life insurance in droves." The expert does not expect a wave of cancellations for current contracts, "even if one or the other customer dissolves his private pension plan for financial reasons".
