The German Finance Ministry wants to limit to 0.9 percent the interest rate that life insurance firms guarantee customers for the duration of their policy, a government source told Reuters on Monday.The new limit, down from 1.25 percent currently, will take effect starting January 1, 2017, the source added.
The ministry said in October that it wanted to scrap the legal limit on the interest rates as the financial stability tool will be replaced by new European risk capital rules.
But in December it said it wanted to keep the limit until at least the end of 2018.
Germany’s so-called guaranteed interest rate, the maximum interest rate that life insurances are allowed to promise to policyholders, is meant to preserve the financial health of industry players by preventing them from outbidding each other.
The new limit sends a clear signal to the insurance industry that the government was sticking to this principle. In the framework of evaluating the life insurance reform law, it will be examined in 2018 in which form the maximum interest rate is still needed as a supervisory instrument, the government source said.
The German insurance association (GDV) said the limit was “excessive”. The ministry plans to hold a hearing on its decision with industry representatives and experts.
Note: Many Malaysian Life Insurers offer more than 5 -8% guaranteed interest rate for the duration of the life insurance policy. This article serve as a reminder of financial scandal awaiting to explode and cutormers will be hurt.
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