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IMF: EU life insurers in danger from low interest rates

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(WASHINGTON) - The International Monetary Fund warned Wednesday that Europe's life insurers face a "high and rising threat" to their solvency from the long period of low interest rates.

With the European Central Bank driving rates down with its quantitative easing program, especially mid-sized life insurers have less income to finance obligations, a situation that could result in the failure of some, the IMF said.

The Fund said in its semi-annual assessment of global financial risks that stress tests showed nearly one-quarter of the firms in the European Union possibly unable to meet solvency standards if interest rates remain low for a long time.

"The failure of one or more midsize insurers could trigger an industry-wide loss of confidence if the failure is believed to reflect a generalized problem," the Fund said.

It said the lack of protections for life insurance policy holders and EU-wide common standards "magnifies the risk of market disruptions."

The life insurance industry in the 28-nation EU represents some 4.4 trillion euros ($4.7 trillion) in assets, and a deep inter-connectedness with the wider financial system.

"The challenges facing life insurers should also be tackled promptly," the IMF said.

"Prompt regulatory and supervisory actions are needed to mitigate damaging spillovers from potential difficulties of individual insurers."


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