Insurers disadvantage their shareholders – or their customers?

But that there may be no strife in the division, then to thee shall be what is above the earth, and to me what is under the earth.” (Gebr. Grimm, The Farmer and the Devil)

Profit participation in life insurance has been a bone of contention between insurers and consumer advocates for years. The issue became particularly explosive when the law firm KTAG accused Allianz of unilaterally favoring shareholders contrary to the alleged 90%/10% distribution of surpluses.

In a criminal complaint against Allianz managers and flanked by a press release, KTAG even accused Allianz of deliberate manipulation. Allianz reacted promptly, rejected the accusations and obtained an injunction. The Regional Court of Stuttgart then prohibited the claim of “deliberately and intentionally manipulated surpluses”.

The insurer was – as could be read in the daily press – apparently considering whether to press criminal charges, as well as civil liability claims against the law firm. Criminal law would include, for example, defamation, libel, slander, etc.

It already seems questionable when a lawyer does not speak of suspicion. For it is precisely here that the fine distinction between punishable (factual assertion) and unpunishable (suspicion) statements lies.

Under civil law, liability could arise from Section 826 of the German Civil Code (immoral damage) due to the accusation of grossly reckless or unconscionable statements, in particular due to the press work initiated by KTAG. Scientifically, an intentional injury is referred to as a “lawyer’s most serious mistake.”

Even in the special case of a criminal complaint, the lawyer as the person making the complaint must, according to the general rule, regularly carry out his own research as to whether the accusations made are justified – failure to do so can lead to damages and, if necessary, also compensation for pain and suffering (cf. BGH judgement of 14.05.1992, Ref. II ZUR 299/90). At the very least, a criminal complaint “in the blue” establishes a claim for damages in tort.

In the case of such PR campaigns, the professional duty to exercise the profession conscientiously may also be affected. In addition, VSH coverage may be waived if a breach is found to have occurred due to tortious acts and the like (knowing breach of duty).

Whether there was a possible misunderstanding on the part of the person making the report and/or whether it was avoidable, or whether sufficient technically sound research was carried out before the criminal report was made, will have to be assessed by the civil and criminal courts in each individual case.

This now gives reason to clarify some misconceptions about surplus participation. First of all: a 90/10 rule, according to which 90 % of the surpluses accrue to the policyholders and only a maximum of 10 % to the shareholders, does not exist for policies concluded from 1995 at the latest. Initially, only the so-called ZRQuotenV (Ordinance on the Minimum Premium Refund in Life Insurance) of 23 July 1996 was decisive for all newer contracts, and currently the Minimum Contribution Ordinance of 4 April


Until 2007, the contracts had to participate appropriately in the investment result, risk result, cost result and other result, but this initially only determines a participation in terms of the reason, not also in terms of the amount. Thus, a participation of 80 % of the investment result and 50 % of the other results could also be appropriate.

A minimum limit for all these types of surplus together is set in this Regulation at 90 % of investment income, which would then also cover all other sources of surplus.

In 2008, a participation of at least 75% in the risk surpluses and 50% in other surpluses such as, in particular, cost surpluses was then additionally introduced. Even this minimum size may, however, be reduced if this is necessary due to, for example, certain unforeseeable losses or increased solvency needs.

It is therefore also incorrect to claim that the minimum profit participation in the interest surpluses is 90 %, because the 90 % refers to the total investment income, but the guaranteed interest rate is offset against this. If, for example, the insurer generates an investment income of 4.4 %, but the 90 % minimum participation of 3.96 % is already exceeded by the contract’s guaranteed interest rate of 4.0 %, no more interest surplus participation is due for this contract. 90% of the interest surplus, on the other hand, would have been 0.36% – but customers are not entitled to this.

It is considered a maladministration under supervisory law, which allows the supervisory authority to intervene if there is no adequate surplus participation. Now, what constitutes a grievance is defined by the said ordinance. The supervisory authority cannot demand more – it simply has no legal basis for doing so. In the Regulation, the legislator has definitively laid down what is to be regarded as reasonable. If only this is then granted, then this can of course in no way be considered unreasonable.

And – what is often misunderstood by laymen – the guaranteed interest rate is not “in addition” to the contractually agreed guaranteed benefits. It does not increase the surplus, but has already been included in the premium calculation in such a way that a correspondingly lower premium is calculated for the guaranteed benefits.

This means that even if interest rates fall, there are still good opportunities for shareholders to participate in earnings. This can also be controlled by setting the costs included in the premiums or the calculated risk premiums at a correspondingly high level – no one requires insurers to offer these at “cost price”, so to speak. somehow prescribed safety margins.

On the contrary, costs and risk premiums can also be set significantly higher than necessary without this being objectionable from a supervisory point of view. On the contrary, this is precisely what corresponds to the actuarial principle of prudence – objections could only be raised if too little is calculated. The regulator has never seen itself as a price control authority.

Limits with regard to the calculated premiums are at most set by the market – e.g. if the products were no longer marketable. A premium thus determined by market analysis in the sense of optimal company profits (market pricing) is not simply a minimum premium calculated actuarially with the minimum necessary costs and risk approaches (actuarial pricing).

The regulations on surplus participation are even less transparent for customers than the price – usually customers only pay attention (if at all) to the current interest surpluses anyway.

This, however, raises the question of whether the waiver of higher premiums that can be enforced in the market and a minimum profit participation of policyholders that is more than “reasonable” according to the law is not to be seen as a – no longer justifiable – discrimination of the shareholders.

Insurers are also commercial enterprises that strive to make a profit. Management may therefore have to answer to shareholders if recoverable profits are foregone or policyholders participate in surplus more than is appropriate under the law.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of (published on 24.11.2010)


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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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