As expected, one significant finding of the first "Vollerhebung Leben" survey was confirmed: the transitional measures and volatility adjustment stipulated in Solvency II regime are achieving the desired effects. Because of the use of these instruments, almost all life insurance undertakings showed the required level of own funds as at 31 December 2014. The number of undertakings unable to demonstrate that they had sufficient own funds despite having used these instruments has not increased compared with the last survey. BaFin is staying in close contact with those insurance undertakings that show signs of possible difficulties at the launch of Solvency II.

President of BaFin Felix Hufeld has welcomed the results of the new survey while stressing that the transitional measures will be gradually phased out during the 16-year transitional period. “The undertakings will therefore need to make major efforts to strengthen their capital base, even despite the fact that the interest rates have gone up slightly since the end of 2014”, said Hufeld.

This was confirmed by the new survey, according to which almost half of the undertakings polled would not have had the required own funds as at 31 December 2014 if they had not applied the transitional measures. The undertakings would have been short some EUR 12 billion in own funds.

Background:

The first “Vollerhebung Leben” survey was conducted by BaFin in 2014 and it was based on the capital market data as at 31 December 2013. Because interest rates continued to fall, BaFin carried out another survey setting the reference date at 31 December 2014.

German life insurance undertakings have traditionally focused on policies with long-term interest guarantees. The market-consistent valuation under Solvency II reveals the risks inherent in these guarantees. Therefore, the introduction of Solvency II in the current environment of low interest rates presents a particular challenge for these undertakings.

A key aspect of the Solvency II regime will be the transitional measures under which the new capital requirements will be gradually phased in over a period of 16 years. The volatility adjustment will be an additional permanent tool available to life insurance undertakings. The adjustment is a spread in the yield curve aimed at avoiding extreme earnings volatility caused by market excesses. The European Insurance and Occupational Pensions Authority (EIOPA) sets the spread. German life insurance undertakings must receive authorisation from BaFin to apply these measures.