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

Author

Listed:
  • Anke Kablau
  • Michael Wedow

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.

Suggested Citation

  • Anke Kablau & Michael Wedow, 2012. "Gauging the Impact of a Low Interest Rate Environment on German Life Insurers," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 58(4), pages 279-298.
    • Handle: RePEc:aeq:aeqaeq:v58_y2012_i4_q4_p279-298
    DOI: 10.3790/aeq.58.4.279
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    Citations

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    Cited by:

    1. Belke, Ansgar, 2013. "Impact of a Low Interest Rate Environment - Global Liquidity Spillovers and the Search-for-yield," Ruhr Economic Papers 429, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Henry, Jérôme & Zimmermann, Maik & Leber, Miha & Kolb, Markus & Grodzicki, Maciej & Amzallag, Adrien & Vouldis, Angelos & Hałaj, Grzegorz & Pancaro, Cosimo & Gross, Marco & Baudino, Patrizia & Sydow, , 2013. "A macro stress testing framework for assessing systemic risks in the banking sector," Occasional Paper Series 152, European Central Bank.
    3. Daliana Luca & Hato Schmeiser & Florian Schreiber, 2023. "Investment guarantees in financial products: an analysis of consumer preferences," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 906-940, October.
    4. Berdin, Elia, 2016. "Interest rate risk, longevity risk and the solvency of life insurers," ICIR Working Paper Series 23/16, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    5. Elia Berdin & Helmut Gründl, 2015. "The Effects of a Low Interest Rate Environment on Life Insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(3), pages 385-415, July.
    6. Kablau, Anke & Weiß, Matthias, 2014. "How is the low-interest-rate environment affecting the solvency of German life insurers?," Discussion Papers 27/2014e, Deutsche Bundesbank.
    7. Berdin, Elia & Pancaro, Cosimo & Kok Sørensen, Christoffer, 2016. "A stochastic forward-looking model to assess the profitability and solvency of European insurers," ICIR Working Paper Series 21/16, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    8. Wilaiporn Suwanmalai & Simon Zaby, 2022. "How Do Life Insurers Respond to a Prolonged Low Interest Rate Environment? A Literature Review," Risks, MDPI, vol. 10(8), pages 1-16, August.
    9. Ansgar Belke, 2013. "Impact of a Low Interest Rate Environment - Global Liquidity Spillovers and the Search-for-yield," Ruhr Economic Papers 0429, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    10. Kablau, Anke & Weiß, Matthias, 2014. "Wie wirkt sich das Niedrigzinsumfeld auf die Solvabilität der deutschen Lebensversicherer aus?," Discussion Papers 27/2014, Deutsche Bundesbank.
    11. Focarelli, Dario, 2017. "Why Insurance Regulation is Crucial for Long-term Investment and Economic Growth," LEAP Working Papers 2017/1, Luiss Institute for European Analysis and Policy.
    12. repec:zbw:rwirep:0429 is not listed on IDEAS

    More about this item

    Keywords

    financial stability; life insurance; low interest rate environment;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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