Unlike Banks, German Insurers Unlikely to Need Government Cash

October 16, 2008

German insurers said on Wednesday they don’t intend to use Berlin’s 500 billion euro ($683 billion) rescue fund, while public-sector banking officials traded barbs over who might be first to ask for cash.

Nikolaus von Bomhard, chief executive of the world’s biggest reinsurer Munich Re, predicted that German insurers would be unlikely to turn to the government, whose rescue package is expected to pass parliament on Friday. “We ourselves will have nothing to do with it from today’s point of view,” von Bomhard told journalists in Hamburg.

Other insurance players including AMB Generali, Talanx and its reinsurance arm Hannover Re, Wuestenrot & Wuerttembergische (W&W) and broker MLP all said they saw no need to make use of the fund.

Europe’s biggest insurer Allianz — still part owner of loss-making Dresdner Bank, which it has agreed to sell to Commerzbank — was well capitalised and saw “no direct need” to use the fund, an Allianz spokesman said.

“We need to know the details before we can come to a final decision whether to use the package,” the spokesman added.

German insurers have faced collateral damage from writedowns as share prices fell amid the financial market crisis, but they have largely steered clear of the risky structured finance products that blew up many of their banking counterparts.

Munich Re’s von Bomhard even said he expected the crisis to shift the balance of power within the finance industry towards insurers and away from banks, whose risk management skills had been found wanting in the run-up to the turmoil.

“We have the right set-up in the current crisis and we will be in a stronger position relative to other market players at the end of it,” von Bomhard said of his own company.

Munich Re’s shares closed down 6.3 percent, outpacing a 8.5 percent decline in the DJ Stoxx index of European insurance shares. Allianz fell 8.4 percent.


Germany’s banks have been reluctant to say whether they would seek help via the rescue package, but observers have suggested that the regional state-owned wholesale banks might be first in line, after several suffered billions in writedowns on their structured finance investments.

German states own large stakes in their regional landesbanks but have come under pressure to merge the lenders in the wake of the credit crisis.

The finance minister of the German state of North Rhine-Westphalia (NRW) on Wednesday said landesbank LBBW, in the southern state of Baden-Wuerttemberg, might need the rescue fund.

“It seems LBBW would like to be the first to take part in the fund,” Helmut Linssen told NRW’s state parliament.

LBBW Chief Executive Siegfried Jaschinski responded that his bank did not need to tap into the government fund.

“It appears that Minister Linssen was misinformed,” he said.

The comments typify the testy relations among the landesbanks and their state-sector owners, who fear a loss of power and prestige if their landesbanks are taken over.

Linssen said the effects of the financial crisis on NRW’s own regional landesbank, WestLB, would be relatively less severe because of a package of guarantees hammered out by the state for the lender earlier this year.

(Additional reporting by Matthias Inverardi, Christian Kraemer, Hendrik Sackmann and Arno Schuetze; Editing by Sharon Lindores)

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