Gauging the Impact of a Low Interest Rate Environment on German Life Insurers

Anke Kablau and Michael Wedow

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2012, vol. 58, issue 4, 279-298

Abstract: A low interest rate environment can pose a key risk to the life insurance sector. A deteriorating return on investment holdings jeopardizes the guaranteed return on life insurance contracts. In this paper, we examine the effect of low interest rates on German life insurers by applying various adverse scenarios to a simple model of life insurers' balance sheets. A low return on investment can lead to a depletion of the bonus and rebate provisions (BRPs). As a result, life insurers' resilience may deteriorate. By way of this analysis, we can model approximately when the bonus and rebate provisions will be depleted.

Keywords: financial stability; life insurance; low interest rate environment (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Gauging the impact of a low-interest rate environment on German life insurers (2011)
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