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BERLIN -- A government proposal to create a federal guaranty fund for life insurers also may protect employer-sponsored pension plans, according to Germany's federal insurance regulatory authority.

The Berlin-based Bundesaufsichtsamt fur das Versicherungswesen, or BAV, plans to recommend establishing a guaranty fund as competitive pressures on German insurers mount, said President Helmut Mueller. However, legislation would be required to implement the BAV's recommendation.

German insurers are protesting the BAV's announcement, arguing that a guaranty fund is unnecessary and contributions would be an additional burden.

But a BAV spokeswoman said the proposed guaranty fund would not resemble a large reserve and would be supported by contributions only in the event of a company insolvency.

Besides life insurers, the guaranty fund may also cover large German pension funds called "Pensionskasse," which are regulated as insurance companies.

"A guaranty fund would likely cover these funds as well," said Joachim Schwindt, head of Germany's fourth-largest Pensionskasse, sponsored by German chemical giant Hoechst A.G.

German employers often base their pension programs on various life insurance products, such as annuities on behalf of employees.

While a policyholder of an insolvent insurer is entitled to reimbursement for premiums paid, the proposed guaranty fund would guarantee policyholders receive their premiums plus 4% interest.

The move has angered the insurance industry, which contends there is no reason for BAV action. "The possibility of a bankruptcy is low, reserves are adequate and contributions an unnecessary cost," said Christian Helmut Dreseke, legal division director of the German Life Insurance Assn. in Berlin.

Mr. Dreseke said current regulations are enough to prevent a bankruptcy. "Besides, any company that has been in trouble in the past has been taken over by a larger company. It could even have a negative effect, tempting weak insurance companies to experiment with excessive risk securities, knowing a net was in place for buyers should the company fail," he said.

Mr. Schwindt of Hoechst also believes regulations are so tight that the bankruptcy of a Pensionskasse is nearly impossible as the exposure to stock market losses is capped at 30%. The remaining assets must be placed into other investments, such as real estate. "It would take a complete collapse of the market. We are allowed to put a maximum 30% of the capital into securities. It just wouldn't happen," he said.

German regulators see things as worsening, particularly in the annuity market. A recent BAV study shows average interest rates have fallen below 4% on bonds, which German annuity issuers use to base their minimum guaranteed return. As a result, the BAV plans to recommend that lawmakers lower the guaranteed interest rate for capital-growing life insurance products such as annuities.

Insurers oppose reducing the guaranteed interest rate because they believe it will harm their ability to compete with banks offering similar products. German insurers are fighting competitive pressures, lower rates and falling investment income, said Mr. Mueller. While no German company is in danger of folding, the drop in investment income and other factors have motivated the BAV response, a BAV spokesman said.