Arab Today, arab today low interest rates make saving nearly mission impossible
Last Updated : GMT 12:33:48
Arab Today, arab today
Arab Today, arab today

Low interest rates make saving nearly mission impossible

Arab Today, arab today

Arab Today, arab today Low interest rates make saving nearly mission impossible

A demonstrator burns a flare in front of a banner that reads
Paris - AFP

While borrowers rejoice at the ultra low and even negative interest rates in Europe, savers fret and life insurance companies and pension funds face what is virtually a mission impossible.

Despite a spike in sovereign bond yields in the past couple of weeks, levels still remain ultra-low. The rate of return to investors on benchmark 10-year German and French bonds has stayed below one percent in recent months and the yields on long-term Swiss debt even went negative.

Sovereign bonds are very important for long-term investors as they are a safe investment that allows them to lock into guaranteed returns.

For life insurance companies and pension funds which are investing the savings of others, the safety of sovereign bonds has led regulators to require them to place certain percentages of their investments in bonds.

But the unprecedented rock bottom interest rates are posing a problem as many life insurance polices offer guaranteed interest higher than current bond yields.

Last year in France, life insurance contracts paid on average 2.5 percent.

Life insurance companies can temporarily dig into investment funds to continue to pay high rates and attract investors, but this is a strategy experts said cannot continue if rates remain low.
"This drop in rates and the uncertainty that has accompanied it is affecting life insurance returns," said Claude Chassain, an actuarial expert at Deloitte.

The level of interest rates has been worrying the industry for months, and analysts and ratings agencies are concerned about the industry.

"Low interest rates in the euro area pose substantial challenges to the life insurance industry," said IMF staff in a blog post earlier this month.

"Mid-sized insurers with guaranteed returns and long-dated liabilities that are not matched by similarly long-dated assets face a particularly high and rising risk of failure," they said.

- Collateral damage -

German insurers, which offer much higher guaranteed returns than their French counterparts, have been particularly critical of the European Central Bank's ultra-low interest rate policy, and its 1.1-trillion-euro ($1.2-trillion) bond buying stimulus programme that has driven down bond yields.

"The problem with German insurers is that not long ago they guaranteed returns on (products) like long-term euro contracts. These yields must be respected every year, even as rates fall," explains Chassain.

According to Karsten Eichmann, president of German insurer Gothaer, that situation has left companies like his caught in an agonising pinch.
"The insurance sector in Germany is currently facing a considerable degree of damage, in the order of several billion, provoked by the European Central Bank's policy of very low rates," Eichmann wrote in the Sueddeutsche Zeitung in early May.

The result, he noted, is "it is clear that in an environment of rates close to zero, life insurance becomes a money-losing activity in all its forms".

Pension funds are also sounding the alarm.

PensionsEurope, the trade organisation for European pension institutions, warned regulators in a report in late April that "pension funds can not be considered collateral damage of the ECB's (quantitative easing policy) when the problem involves retirement savings of millions of Europeans".

Chassain says low interest rates like those currently in place are destined to make life difficult for any insurer with long-term guarantees on return.

"In the United Kingdom, pension funds abandoned fixed-yield agreements quite a while ago in favour of fixed-contribution schemes that allow them to take economic conditions into account at the time (the client) retires," Chassain says.

For insurance companies, the strategy is to invest in high-risk assets like corporate bonds, stocks and infrastructure projects. Meanwhile, most also encourage clients towards options that do not guarantee savings invested, such as unit-linked plans.

That same trend has already taken hold in Japan, where interest rates have remained low for quite some time.

Insurers have restructured their portfolios to reduce investments with fixed rates of return and replaced those with plans tied to demographic risk, such as term life insurance or provident funds, Chassain says.

In France, payments into unit-linked plans increased 38 percent in the first quarter of 2015 compared to the same three-month period the previous year.

 

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today low interest rates make saving nearly mission impossible Arab Today, arab today low interest rates make saving nearly mission impossible

 



Arab Today, arab today
Arab Today, arab today Laptop ban sparks ire

GMT 09:02 2017 Thursday ,23 March

Laptop ban sparks ire
Arab Today, arab today Sheds light on major steps in 12-year career

GMT 06:07 2017 Monday ,27 February

Sheds light on major steps in 12-year career
Arab Today, arab today Dozens dead in US-led Syria strikes

GMT 08:35 2017 Thursday ,23 March

Dozens dead in US-led Syria strikes
Arab Today, arab today AT&T, Verizon join Google ad boycott

GMT 10:30 2017 Thursday ,23 March

AT&T, Verizon join Google ad boycott

GMT 13:03 2017 Wednesday ,22 March

Germany should ditch austerity, embrace EU investment

GMT 10:43 2017 Wednesday ,22 March

Bags carry Hermes to record profit

GMT 09:49 2017 Wednesday ,22 March

Khamenei fleshes out 'Made in Iran' vision

GMT 08:46 2017 Wednesday ,22 March

Cooperation with specialised British companies hailed

GMT 07:35 2017 Wednesday ,22 March

David Rockefeller Dies at Age 101
View News in Arabic - Business: اقتصاد دولي
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today Yemeni official warns education is under threat

GMT 12:03 2017 Tuesday ,14 March

Yemeni official warns education is under threat
Arab Today, arab today 2017 already marked

GMT 15:25 2017 Tuesday ,21 March

2017 already marked
Arab Today, arab today Prepares to give stargazers an eyeful

GMT 13:38 2017 Monday ,06 March

Prepares to give stargazers an eyeful
Arab Today, arab today Renault Trezor wins design award

GMT 11:56 2017 Tuesday ,21 March

Renault Trezor wins design award
Arab Today, arab today Palestinian police wage war

GMT 07:53 2017 Friday ,17 March

Palestinian police wage war
Arab Today, arab today Donia Abdel Aziz participates in "Game of Silence"

GMT 07:12 2017 Tuesday ,21 March

Donia Abdel Aziz participates in "Game of Silence"
Arab Today, arab today Mexico threatens to ditch US corn imports

GMT 10:34 2017 Tuesday ,21 March

Mexico threatens to ditch US corn imports

GMT 07:39 2017 Monday ,20 March

Dalia Mustafa believes in the presence of ghosts

GMT 19:27 2017 Saturday ,11 March

Boualsof launches "Priestess Kahina" collection

GMT 16:41 2017 Monday ,20 March

Preserving the memory of glaciers

GMT 19:45 2017 Monday ,20 February

Sarah Belamesh designs antiques of "ceramic"

GMT 13:11 2017 Tuesday ,21 March

Web-based counseling lowers blood pressure

GMT 10:18 2017 Tuesday ,21 March

Kuwait's tourism industry to be worth

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons

GMT 22:39 2017 Thursday ,09 March

Zuhair Murad presents his new collection "Resorts"
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday