Fitch: Low Interest Rates Put Pressure on German Life Insurance
At end-1Q16 German life insurers had an average Solvency II ratio of 209%, down sharply from 283% at end-2015, driven mainly by lower interest rates. The regulator said that 53 out of 84 reporting German life companies used Solvency II transitional measures and that 26 of these would otherwise not have met the requirements. Solvency II is challenging for some insurers, with potentially negative surprises when they report results, particularly when disclosing metrics excluding transitional benefits, as will be required in 2017.
However, Fitch expects rated German life companies to meet policyholders' guarantees. Fitch has simulated run-off scenarios with different assumptions that show they could meet their guarantees for a prolonged period, even if interest rates stay low. Nevertheless, there would be severe pressure on profitability, potentially threatening ratings.