German Life Insurers to Face Sales Decline, Moody’s Says

German life insurers will see reduced sales after the nation’s Parliament cut requirements for them to provide minimum returns, Moody’s Investors Service said.

“Traditional life products, which represent the bulk of insurers’ sales, will become less attractive to policyholders, and we expect most insurers to experience a prolonged decline in sales,” Moody’s analysts including Benjamin Serra said in a report today.

German life insurers such as units of Allianz SE (ALV), Axa SA (CS) and Zurich Insurance Group AG (ZURN) are squeezed by low interest rates on the one hand and guarantees of as much as 4 percent on policies sold in the past. To help bolster the industry, lawmakers introduced a new regulation in August that cut the guaranteed annual returns for policies sold starting next year to 1.25 percent from 1.75 percent. It also reduced payouts of unrealized gains when contracts mature or are canceled.

“The reduction in the guaranteed rate on new business will ultimately be credit positive because lower guarantees will reduce the spread risk for German life insurers,” Moody’s said. “This will also foster the sale of alternative products or unit-linked products. However, these benefits will only arise over the longer term.”

Life insurers such as Allianz Lebensversicherung, Ergo Lebensversicherung, a unit of Munich Re (MUV2)’s primary insurance subsidiary, and Axa Lebensversicherung have introduced new life-insurance products that rely less on guarantees to cope with the challenges. The German life-insurance market is Europe’s third largest after the U.K. and France, with about 87 billion euros ($111 billion) of premiums.

“The development of unit-linked or alternative products will not offset the loss in traditional products, mainly because customers are used to the classical guarantees, remain risk-adverse and will therefore be reluctant to purchase these new products,” Moody’s said. It added that “most distribution networks are not used to selling these products.”

To contact the reporter on this story: Oliver Suess in Munich atosuess@bloomberg.net

To contact the editors responsible for this story: Mark Bentley atmbentley3@bloomberg.net Steve Bailey, Jon Menon