According to draft legislation proposed by the German government, life insurers will soon be given the option to offer “Variable Annuities” in Germany.

Variable Annuities are variable pension products. The customer pays a single premium which is invested in one or more funds. The policyholder will have the chance to participate in positive developments on the stock markets but will have, at the same time, a guaranteed regular pension amount – to unlike the position under the unit-linked pensions currently offered in Germany.

Variable Annuities are successful in the US and Japan but could not previously be offered in Germany due to the restrictions of the Insurance Supervisory Law (see Sect. 54 b para. 3 regarding the investment of covering assets). The draft law allows for a market valuation of guarantees of unit linked policies which is aligned to the respective capital investment and the relevant hedging instruments.

GDV, the German Association of Insurers, welcomed the draft law as it will allow the German industry to offer products which can only currently be offered by foreign insurers. GDV views this initiative as a first step towards a market valuation of insurance products as required by Solvency II.

The law is expected to be implemented from 1 January 2009