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German life insurers hope for respite as investment yields scrape floor

With no sign of a tightening in European monetary policy, low investment yields will continue to put pressure on German life insurers, many of whom sold overgenerous life policies even as signs were emerging that the European economy was entering a prolonged period of depressed interest rates.

Insurers across Europe are struggling to service their guaranteed life obligations, which promise to pay out fixed sums regardless of market conditions. But German insurers have had it particularly tough, as the dynamics of their domestic market pushed many to sell particularly generous policies to a lot of customers. Many such policies paid rates of up to 4%, a yield which investors would struggle to find on safe assets today. Ten-year debt issued by the German government, considered one of the safest debtors in the world, paid a measly 0.15% as at April 1.

As insurers’ higher-yielding assets mature, they are being replaced by lower-yielding ones, driving down total average investment yields. According to data gathered by SNL Financial, part of S&P Global Market Intelligence, the major German insurance groups, including reinsurers, have all experienced marked falls in their investment returns in recent years.

Next Finance , April 2016

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German life insurers hope for respite as investment yields scrape floor

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Note EURO STOXX 50® Index implied repo trading at Eurex

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