The persistently low interest rates are increasingly weighing on insurers, especially life insurers. The sector has prepared for a continuation of depressed interest rates in the short term. The undertakings have strengthened their equity bases, cut their discretionary benefits and offer products with new types of guarantees. Yet some life insurers are increasingly coming under pressure, and BaFin is therefore supervising them with particular attention.

New kinds of guarantees

Long-term contracts with guaranteed interest continue to be a focus of new business at German life insurers. To date, the most significant product category has been deferred annuity insurance with life-long guarantees of the applicable maximum technical interest rate as well as annual increases in the guaranteed benefits by way of profit participation. In the current low interest rate environment, these kinds of guarantees pose a significant risk to life insurers. For several years, the undertakings have therefore increasingly been promoting products with new types of guarantee mechanisms. For example, the guarantees may be based to a greater extent on a bullet payment at maturity, they may be recalculated at the commencement of the annuity, or cover only the sum of the contributions made.

Pensionskassen in the low interest rate environment

The low interest rates are increasingly having a negative impact, particularly on Pensionskassen, whose business model is based on a long-term view. BaFin therefore monitors them closely, too, so that the undertakings maintain and further strengthen their risk-bearing capacity as far as possible. The Pensionskassen have already taken early steps in this regard, as evidenced by BaFin's projections. Almost all Pensionskassen have recognised additional provisions. However, if the low interest rates persist much longer, it is expected that some Pensionskassen may no longer be able to provide the promised benefits in full from their own resources. If it comes to that, the appropriate response in the case of Pensionskassen organised as mutual insurance associations (Versicherungsverein) would be that funds are provided by their owners; in the case of stock corporations, this would be the shareholders' responsibility.