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The Economic Impact of Protracted Low Interest Rates on Pension Funds and Insurance Companies

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  • Pablo Antolin
  • Sebastian Schich
  • Juan Yermo

Abstract

A period of protracted low interest rates is a feasible, even if not the most likely, scenario going forward and such a scenario would adversely affect pension funds and insurance companies. Protracted low interest rates affect investment opportunities and have a potentially significant adverse effect on life insurance companies and institutions whose liabilities consist of a fixed investment return or benefit promises, such as is the case for defined-benefit pension funds. It cannot be ruled out that the financial institutions affected engage in “gambling for redemption” in an attempt to match the level of return promised to beneficiaries when financial markets were more elevated.

Suggested Citation

  • Pablo Antolin & Sebastian Schich & Juan Yermo, 2011. "The Economic Impact of Protracted Low Interest Rates on Pension Funds and Insurance Companies," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2011(1), pages 237-256.
    • Handle: RePEc:oec:dafkad:5kg55qw0m56l
    DOI: 10.1787/fmt-2011-5kg55qw0m56l
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