German insurers tweak offer to keep profit, clients-S&P

FRANKFURT, Oct 10 (Reuters) - German insurers are revampingtheir offerings of popular guaranteed return life insuranceproducts as they seek to stop profit erosion caused by lowinterest rates, ratings agency Standard & Poor's said onWednesday.

Traditional insurance policies that guarantee a return tothe policy holder over many years regardless of financial marketfluctuations are hugely popular in Germany, accounting for about70 percent of new business.

But even though insurers' ability to meet those obligationsover the coming years is not in danger, ratings agencies say,insurers' financial strength is being squeezed by rock-bottominterest rates, prompting a product rethink.

"Guarantees cost a lot of money in this environment," S&Pcredit analyst Christian Badorff told a press briefing.

Insurers around Europe have been trying to steer away fromguarantee products and shift more risk onto the policy holderbut Germans remain steadfast in their preference for guarantees.

"Although insurers have developed a variety of products,including different levels of guarantees, these sometimes provemore complicated to sell," S&P said.

Customer confidence in insurers is flagging, hurt in part bylack of clarity over their pricing policies, which the Germangovernment is now forcing them to improve.

"Pressure to improve transparency will likely reduce themargins on which (insurers) are increasingly dependent tomaintain their financial strength, in view of unfavourableinvestment conditions," S&P said.

S&P said it had a negative long-term view of the German lifeinsurance segment as the low interest rate environment graduallygnaws away at insurers' profitability.

Stock market listed insurers in Germany include Europe'sbiggest insurer, Allianz , as well as Munich Re

subsidiary Ergo and newly listed insurer, Talanx.

S&P rival Fitch this month said its ratings outlook for theGerman life insurance sector was stable.

Fitch said it expected new business would increasingly shifttowards products with lower regulatory capital requirements,like unit-linked products or biometric risks, such as mortality,disability or the diagnosis of diseases.

"There is a considerable underlying need for privateprovision for old age, which offers a huge potential for lifeinsurers to expand their business in the coming years, if theyoffer the right products," Fitch said.

(Reporting by Jonathan Gould; Editing by Toby Chopra)

((Jonathan.Gould@thomsonreuters.com)(+49 69 7565 1242 ReutersMessaging: jonathan.gould.thomsonreuters.com@reuters.net))