"Examining the Idea of Essential Warranties"

In a series of videos titled #Extrapolates, Jürgen Bierbaum, board member of the German Actuarial Association (DAV), discusses the significance of guarantees in a zero-interest rate environment.

German life insurers and occupational pension schemes (bAV) organize long-term, collectively oriented capital investments with the primary purpose of providing a reliable lifelong safety net for securing basic needs in old age. These guarantees are crucial during the retirement phase, but their role has evolved in the current economic climate.

Previously, guarantees were often understood as at least expected returns. However, in a zero-interest rate environment, this perspective is no longer meaningful or up-to-date. Instead, guarantees primarily serve as loss limiters in the event of poor capital market developments.

Bierbaum emphasizes the importance of these guarantees in the context of retirement. He states that the best-suited German insurance companies and professional pension insurance funds for providing a secure safety net in old age are typically those with strong actuarial expertise, financial stability, and a long-standing commitment to sustainable pension provision.

However, the guarantee level should not be too high from an actuarial perspective to fulfill its role as a lower limit. If the guarantee level is too high, companies will no longer be able to diversify their capital investments profitably. Conversely, if the guarantee level is too low, it may not provide sufficient protection for retirees.

Therefore, the guarantee level should be set appropriately to balance its role as a safety net and a profit-making investment opportunity. Bierbaum highlights that a change in thinking is necessary regarding the concept of guarantees to adapt to this new reality.

In the videos, Bierbaum discusses various aspects of guarantees and their role in the current economic climate. The series, titled #Extrapolates, aims to educate and inform viewers about the importance of guarantees in a zero-interest rate environment.