German Insurers See Shareholder Backlash Risk in Dividend Clamp

A German government proposal to restrict life insurers’ dividend payments to help ensure payouts for policyholders risks deterring investors, the industry’s lobby said.

“If we’re to build up capital, we need shareholders who see a point in investing in life insurers,” Alexander Erdland, head of the GDV insurance industry association, told reporters in Berlin today. “When they hear ‘a lock on dividends’ that’s unlikely to happen.”

Life-insurance payouts rose to 2.8 billion euros ($3.9 billion) last year from 1.3 billion euros in 2010 after a legal change in 2008 compelled companies to pay matured or canceled policies partly by drawing on reserves, according to GDV.

Companies including Allianz SE (ALV), Europe’s biggest insurer, have been pressing Chancellor Angela Merkel’s coalition to change the law. A Finance Ministry proposal presented March 11 targets shareholder profits to reduce reliance on reserves at a time of record-low interest rates, while reducing the guaranteed interest that insurers pay on policies.

The value of the industry’s reserves fell to 60 billion euros at the end of 2013 from 90 billion euros on June 30, Erdland said. “No one foresaw in drawing up the 2008 legislation that low interest rates would persist for so long,” he said.

The GDV, lobby of Germany’s 793 billion-euro life insurance industry, wants to limit the fix to changes in the 2008 law, Erdland said.

Many Germans rely on life insurance for part of their retirement income. About 95 million policies were outstanding at the end of last year.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Tony Czuczka, James Hertling

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