Prof. Helmut Gründl, Managing Director of the International Center for Insurance Regulation at Goethe University's House of Finance, warns about the distribution of certain valuation reserves of life insurances. "The participation of insurance customers in valuation reserves of fixed-interest securities is the exact opposite of consumer protection", writes Gründl in a short commentary. On Tuesday, February 26, the conciliation committee of Bundestag and Bundesrat discusses about an amendment of § 153, para. 3 VVG.
Gründl points to the fact that valuation reserves for fixed-interest securities are only of a temporary nature. When the security matures, they will be "automatically" released such that all insurance customers participate with the normal surplus sharing. A participation as provided in § 153, para. 3 VVG since its amendment in 2008 – participation in half of those customers whose insurance contract matures – would in contrast mean that only those insurance customers benefit from the reserves whose contracts coincidentally are at maturity.
Gründl stresses that life insurance is an intergenerational product. Payments can be withheld from one generation to benefit another generation that for example is affected by persistently low interest rates. For this reason, Gründl favors the participation of life insurance customers in such valuation reserves that are not necessary for the intergenerational spreading of risks. Therefore, a target for valuation reserves should be set, for example subject to the amount of the actuarial reserves.
According to Gründl, the current problem arises to a large extent because of the interest rate reductions in the last years. Together with the present period of low interest rates it increases the problems of life insurance companies to generate given long-term warranties through their capital investments.
Prof. Gründl's commentary can be downloaded here.