Dusseldorf. The reform of private pension provision is changing the business of life insurers. At the beginning of 2027 it will replace the Riester model. In the future, the state will also support retirement savings accounts without guarantees and with a high share quota. Guaranteed products remain possible. “This is changing competition,” says Sebastian Ewy from the German Financial Service Institute (DFSI). “In the future, insurance products will be more prominent alongside direct capital market-oriented solutions.”
Insurers are not afraid of this competition. “The reform will noticeably change the market,” says Jürgen Schrameier, CEO of WWK Versicherungen. “We also see this as a great opportunity for the insurance industry.” Retirement provision is more than just building up assets: it also depends on how the capital built up can be turned into reliable income and how risks can be hedged in the long term.
“Demographic change and the declining level of statutory pension benefits are making additional private provision necessary for more and more people,” said Schrameier. “At the same time, we see continued interest in building up this provision through the capital market in a return-oriented manner.” Klaus Math, board member of LV 1871, sees opportunities to open up new target groups. “Flexible pension solutions and qualified advice that meet people’s individual needs will be crucial.”
Ewy also sees advantages over pure depots. “Life insurance continues to offer benefits that cannot be fully covered with a pure portfolio,” he says. “Unit-linked and hybrid pension insurance is therefore likely to continue to gain in importance.” The WWK relies on fund-linked provision. Your customers prefer ongoing contributions to one-off payments. LV 1871 is growing in both segments. “Single contributions are particularly interesting for customers with existing capital and as part of the transfer of assets through heirs and gifts,” says Math. “The decisive factor is always the individual life situation.”
The DFSI regularly assesses the product quality, substance and service of life insurers. As in previous years, the WWK will also lead the quality rating in 2026. This is followed by Ergo Vorsorge, LV 1871 and Europa. All four received the grade “excellent”. In addition to product quality, substance strength is crucial.
According to the DFSI, German life insurers will be in a better position in 2026 than during the low interest rate phase. Higher capital market interest rates improve the conditions for new and reinvestments. Since the beginning of 2025, the maximum interest rate has been back to 1.0 percent. This creates scope for guarantees and improves the earning potential.
“The downside of the interest rate turnaround is still clearly visible,” points out Ewy. Many older fixed-interest securities have lost market value because they still have low interest rates. “The resulting hidden burdens will not be a side issue in 2026 either,” he says. “For many life insurers, they remain a significant burden on the balance sheet.”
Hidden burdens are initially valuation differences. A fixed-interest security can be on the books at 100 euros even though its current market value is only 90 euros. If the insurer holds it to maturity, there is no actual loss. “It becomes problematic when investments have to be sold beforehand,” warns Ewy. Then the balance sheet burden can turn into a real loss. “High hidden liabilities therefore limit flexibility in capital investments.” Reallocations are more difficult and additional liquidity requirements can reduce financial leeway.
Schrameier sees his house in a comparatively good position. “During the period of low interest rates, we consciously decided not to invest our customers’ capital in long-term bonds with low interest rates,” he says. “Instead, we invested in higher-yielding forms of investment such as stocks, alternative investment products and real estate.”
As a result, price declines in long-term, low-interest bonds would have had less of an impact on the WWK. “After the interest rate turnaround, we were able to use liquid funds to invest more in government and corporate bonds with higher interest rates,” said Schrameier.
The Bundesbank continues to classify the burden as material. In the second quarter of 2025, 87 percent of life insurers reported hidden liabilities. On average, they corresponded to around nine percent of the balance sheet total.
A DFSI overview of the 30 largest active life insurers by capital investments shows how different the situation is. Only three companies have a positive balance of hidden reserves and hidden liabilities. At the top is LV 1871 with a positive rate of 4.68 percent. This is followed by the WWK with 3.72 percent and the Hannoversche with 2.28 percent.
The remaining companies have a negative balance. These include SV Sparkassen-Versicherung with minus 2.07 percent, Baloise with minus 3.35 percent, Ergo Vorsorge with minus 4.46 percent and Continentale with minus 4.71 percent. “Individual of the 30 largest active life insurers have negative balances of more than 20 percent,” emphasizes Ewy.
The higher the negative balance, the more important it is to be able to hold investments until maturity. This is only possible as long as no greater need for liquidity forces sales. “The three companies with positive valuation reserves, on the other hand, are in a more comfortable starting position,” says Ewy. You can restructure more easily without realizing hidden burdens and invest the funds that become available more flexibly in investments with higher interest rates.
The DFSI rating assesses the corporate quality of life insurers in three areas: substance (40 percent), product quality (40 percent) and service (20 percent). The DFSI analyzed a total of 35 providers.
The DFSI evaluates the substance strength ratio, the Solvency II ratio, the net return and the 2026 profit declaration. The substance strength ratio sets twice the equity capital, the free provision for premium refunds and one third of the valuation reserves in relation to the coverage reserve. From 12.5 percent there is the best grade. For the Solvency II ratio, insurers receive full points from 350 percent; below 100 percent they receive no points. If the adjusted Solvency II ratio also falls below 100 percent, the DFSI deducts an additional 50 points from the substance strength rating.
The DFSI weights product strength at 70 percent and product transparency at 30 percent. It examines offers in the areas of risk life, occupational disability and pension insurance.
The early cancellation rate is 40 percent, the late cancellation rate is 20 percent and the Bafin complaint statistics are 40 percent. Cancellation rates of five percent receive the best rating; from 15 percent there are no points. When it comes to the complaint rate, a value of 1.5 complaints per 100,000 contracts is considered the best value; from 8.0 there are no more points. Insurers can receive special points for particularly good results in customer and service studies.
“The higher interest rate level opens up new opportunities for investment,” confirms Math. “As a mutual insurance association, we use these with the aim of acting in the long-term interests of our customers.”
The coming years will show how quickly insurers can convert their investments to the new return level and how much financial leeway they have to do so. “The industry’s starting position has improved,” says Ewy. “However, the differences between the individual life insurers remain large.”
