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

FRANKFURT, Oct 10 (Reuters) - German insurers are revamping their offerings of popular guaranteed return life insurance products as they seek to stop profit erosion caused by low interest rates, ratings agency Standard & Poor's said on Wednesday.

Traditional insurance policies that guarantee a return to the policy holder over many years regardless of financial market fluctuations are hugely popular in Germany, accounting for about 70 percent of new business.

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

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

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

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

Customer confidence in insurers is flagging, hurt in part by lack of clarity over their pricing policies, which the German government is now forcing them to improve.

"Pressure to improve transparency will likely reduce the margins on which (insurers) are increasingly dependent to maintain their financial strength, in view of unfavourable investment conditions," S&P said.

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

Stock market listed insurers in Germany include Europe's biggest 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 the German life insurance sector was stable.

Fitch said it expected new business would increasingly shift towards 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 private provision for old age, which offers a huge potential for life insurers to expand their business in the coming years, if they offer the right products," Fitch said.

(Reporting by Jonathan Gould; Editing by Toby Chopra)

(( 69 7565 1242 Reuters Messaging: