Is capitalism broken

K A P I T A L I S M U S - K R I S E : Promised and broken

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ZEIT graphic / source: WestLB Panmure

The boss saved the bad news until the end of his term of office. "The situation is serious," admitted Helmut Müller, the outgoing President of Insurance Supervision, to the investor magazine at the beginning of June Focus Money. It is "quite possible" that the assets of the life insured in the coming year will earn lower interest than expected. In view of the weak stock market, it will be "more difficult for insurers to present their commitments and guarantees".

Four weeks later, the situation is no longer serious. It's dramatic. Throughout June, insurance companies - the largest investors in the capital market - sold shares in order to save what some people can no longer save: the prospect of interest on customer money. The life insurers, above all the market leader Allianz, had to cut the credits last December. But falling share prices and low interest rates on the bond market have increased the pressure on the insurance industry again. Now even the hidden reserves that were built up during the stock market boom of the late 1990s have been used up (see chart). Some providers, it is said, could even have problems generating the minimum interest rate set by the state of 3.25 percent. "Life insurers are in their biggest crisis to date," said Carsten Zielke, insurance analyst at WestLB Panmure. And all of this at a time when they are most challenged - for private retirement provision.

The bear market turns into an oath of disclosure for an entire industry. Because now the homemade problems are becoming visible, says Manfred Poweleit, the editor-in-chief of the branch service map report. "The companies that have only bought shares since the mid-1990s, when prices have risen, really stumble." Those who got in too late could hardly build up course reserves. This also applies to those providers who have grown strongly in recent years and who only park the incoming customer money on the stock exchange. Life insurers are allowed to invest up to 35 percent of their investment amount in shares - and in fact the share of shares, the so-called share quota, rose sharply at the end of the 1990s (see graphic).