Bloomberg News

German Life Insurers Remain Stable Amid Crisis, Fitch Says

October 05, 2011

(Updates with analyst comment in second paragraph.)

Oct. 5 (Bloomberg) -- The outlook for German life insurers, including units of Allianz SE and Munich Re, remains stable as conservative investment strategies mean that risks related to the debt crisis could be “digested,” Fitch Ratings said.

“German life insurers’ investment portfolios are well balanced and able to generate sufficient investment yield to meet the guarantees of existing life insurance portfolios,” Fitch analyst Stephan Kalb said in Frankfurt today. “There are also additional sources of income that can be drawn.”

Low interest rates and volatile capital markets are “the main challenges” for companies such as Talanx AG, Munich Re’s Ergo Versicherungsgruppe and Allianz, Europe’s biggest insurer, the ratings firm said. Pressure from low interest rates is partly offset by reduced risks in the industry’s investment portfolios and earnings from underwriting, Fitch said.

“Balance sheets today are stronger than before the beginning of the financial crisis,” Chris Waterman, head of EMEA insurance ratings at Fitch Ratings, said at the briefing.

As German life insurers have a “small direct exposure” to peripheral euro zone sovereign bonds, “even larger losses in their market values could be digested,” Kalb said. The impact of low yields on German government bonds is limited as they only represent about 13 percent of industry investments, he said.

Insurance Returns

The yield gap between Italian and German 10-year bonds widened today as rival ratings firm Moody’s Investors Service lowered Italy’s grade by three levels to A2 from Aa2.

German life insurers are likely to be able to pay customers guaranteed returns even as their earnings are eroded by low interest rates, Standard & Poor’s said last week. S&P estimates an average investment return of 3.5 percent to 4 percent for German primary insurers this year, compared with an average return guarantee for life insurance customers of about 3.1 percent.

Germany is Europe’s third-biggest insurance market by premium income behind the U.K. and France, according to statistics by Brussels-based CEA, the European insurance and reinsurance federation.

--With assistance by Rajiv Sekhri in Frankfurt and Mariajose Vera in Munich. Editors: Dylan Griffiths, Steve Bailey.

To contact the reporter on this story: Oliver Suess in Munich at

To contact the editors responsible for this story: Frank Connelly at Edward Evans at

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