How is the low-interest-rate environment affecting the solvency of German life insurers?

Life insurance companies are affected directly by the impact of the low-interestrate environment. To fulfil promised guarantees they may be forced to tap into their own funds, say if the current income generated is no longer sufficient to cover the policyholders' profit participation share as defined by the enterprises or even guaranteed benefits. They may then find themselves in a position in which their solvency is at risk. A scenario analysis is used to examine the stage at which German life insurers would no longer be able to fulfil the currently prevailing Solvency I own funds requirements owing to the low-interest-rate environment. In contrast to other literature in this field of research we use prudential individual data from 85 German life insurers. Even in a mild stress scenario 12 life insurers, with a combined market share of some 14%, would no longer be able to fulfil the own funds requirements by 2023. Under more severe stress conditions, especially if yields on investments were also to come under pressure, 32 enterprises would no longer be able to meet the Solvency I own funds requirements. This points to a potential solvency risk in the life insurance industry.