Posted by: Ben Vickers on October 28, 2011
Europeans working now can’t win. Not only will many of them bail out the banks through their tax payments in years to come and work longer as the retirement age recedes. They will also foot the bill for insurers’ losses on sovereign debt through their life-insurance policies.
A large part of the 50% writedown of the value of Greek sovereign debt on insurers’ books will probably be passed straight to life-insurance policyholders, Bloomberg’s Kevin Crowley reports. Sovereign debt losses will shrink the profit insurers can share with policyholders.
In Germany, the U.K. and Switzerland, customers’ share of the investment risk on these [life insurance] products is 90 percent while in Italy their share is 80 percent with insurance companies making up the remainder, according to Morgan Stanley.
When Allianz SE, Europe’s biggest insurer, wrote down the value of its Greek bonds in the second quarter of this year, policyholders took 73 percent of the 279 million-euro impairment.
And where else to turn with your money? To the stock market? For the sake of comparison, anyone holding onto European life insurance stocks for the past six years will have seen the value of their investment trail inflation: the Bloomberg Industry EU Life Insurance index has added 7 percent since mid 2005, or an average of just over 1 percent a year.
It might be some consolation that insurers, ironically helped by their ability to push bond losses onto clients, have done better than banks. Those sitting on banking stocks since 2005 have watched the Bloomberg Industry EU Banks index drop 25 percent.