Plans to no longer put legal limits on the interest rates that life insurance firms guarantee their customers for the duration of their policy as the financial stability tool will be replaced by new European risk capital rules.
Germany's so-called guaranteed interest rate, the maximum interest rate that life insurances are allowed to promise to policyholders, was meant to prevent industry players from outbidding each other in their fight for customers with dubious yield guarantees that might overburden their financial strength.
European risk capital rules known as Solvency II will instead force insurers to set aside capital buffers if they promise long-term returns on life insurance policies, rendering legal limits on guaranteed returns obsolete.
The German finance ministry said that, based on draft rules, the limit on guaranteed returns would cease to exist in 2016 for new policies sold by large insurers governed by Solvency II.
Industry players such as Talanx Zurich and Munich Re's Ergo have already said they would no longer sell new policies with guaranteed returns in Germany because the current low interest rate environment rendered them unattractive for customers.
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