German reinsurer Munich Re is boosting its cash reserves in the face of the punishing negative interest rates from the European Central Bank, it said on Wednesday.
The world’s largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.
Munich Re has held gold in its coffers for some time and recently added a cash sum in in the two-digit million euros, Chief Executive Nikolaus von Bomhard told a news conference.
“We are just trying it out, but you can see how serious the situation is,” von Bomhard said.
The ECB last week cut its main interest rate to zero and dropped the rate on its deposit facility to -0.4 percent from -0.3 percent, increasing the amount banks are charged to deposit funds with the central bank.
ECB policy has caused financial market interest rates to fall, reducing the return that insurance companies can earn from investments in bonds, hurting profit and raising concerns about their ability to meet future promises to policyholders.
(Reporting by Alexander Huebner and; Jonathan Gould; editing by David Goodman)
[Editor’s note: On March 18 Reuters corrected a comment that Munich Re was boosting gold and cash reserves; the company is boosting its cash reserves.]