Fitch: Low Interest Rates Put Pressures on German Life Insurance
OREANDA-NEWS. Fitch Ratings says in a new dashboard that the pressures of low investment yields are the main driver of the negative outlook on the German life insurance sector. Fitch believes that for now the pressures are manageable and maintains a stable rating outlook. However, continued low interest rates, with further pressure on capital and earnings, could lead to a change in the rating outlook to negative.
Persistent low interest rates are eroding the capital buffers held by German life insurers and Fitch expects capital to remain under pressure in 2016. With the introduction of Solvency II on 1 January 2016, regulatory capital requirements increased significantly for German life companies and Fitch expects that many companies will rely on transitional measures to limit the impact.
However, Fitch expects rated German life companies to meet policyholders' guarantees. We have simulated run-off scenarios with different assumptions that show rated German life insurance companies will be able to meet their guarantees for a prolonged period, even if interest rates remain low. Nonetheless, profitability could come under severe pressure.