‘Asset allocation in a low interest rate environment’: Where do we stand?
on 1 December 2016, hosted by the European Capital Markets Institute (ECMI) in cooperation with PensionsEurope



Karel Lannoo, CEO, CEPS and General Manager, ECMI


Dimitris Zafeiris, Head of Financial Stability, EIOPA

Philippe Ithurbide, Head of Global Research, Strategy and Analysis, Amundi

Reinhard Eckl, Associate Director, Deputy Head of Regulatory Strategy, Allianz SE


Investment industry experts discuss impact of low interest rates on pensions and insurance funds


  • Experts say that interest rates are making the necessary ‘search for yield’ difficult for investors

  • One solution is a move to riskier assets. Solvency II needs to adapt to this new reality

  • ‘Pan European Pension Product’ initiative can offer a channel for long term investment


Dimitris Zafeiris, Head of Financial Stability at the European Insurance and Occupational Pensions Authority (EIOPA), said that a result of the low interest environment is an increasing reinvestment risk for European insurers and pension funds. EIOPA carried out a stress test for insurance in 2016, which estimated the vulnerabilities of the insurance industry; a pension fund stress test looking at impact on the ‘real economy’ will be carried out in 2017.


Reinhard Eckl, Associate Director and Deputy Head of Regulatory Strategy at Allianz, described a situation of “unprecedentedly low and negative interest rates”. Pointing out that “slightly over 50% of Eurozone sovereign debt is being traded at negative yields (and 95% for debt with maturity of two years or less), he said that this is “a very difficult environment for investors”.

He argued that the EU’s Solvency II law does not fully reflect the business model of insurers. It focuses on short term assets and market volatility but he said that as insurers are not in a position to sell assets at short notice these are not relevant tests. In the upcoming review of Solvency II in 2018, he suggested technical measures could rectify the drawback so that insurers can invest more in the long term. “Capital requirements should focus on fundamental default risk,” he suggested.

Allianz’s response to the low interest environment has been to carry out a complete redesign of its product portfolio into alternative assets (e.g. real estate, renewable energy or private equity). Policy holders can choose to have insurers manage their portfolio or to have an active role in how their money is invested.

PensionsEurope’s representative Philippe Ithurbide, Head of Global Research, Strategy and Analysis at the asset management company Amundi, assessed 25 implications of the low interest rate environment for the asset management business model. The search for yield through the shift from traditional asset classes towards riskier investments is a necessary step for pension funds as this is in line with their primary objective to be able to provide for pensions. Furthermore, in the context of the CMU, pension funds have been invited to make investments that boost jobs and growth across the EU.


Ithurbide noted that management fees have declined sharply and the problem of protecting investments and guaranteed products is “particularly acute”. One solution was to extend duration to generate returns but this increases portfolio risk; another was to invest in low quality credit which also has risk implications. The idea of a ‘risk-free asset’ needed to be examined as many were now ‘return-free assets’.


Dimitris Zafeiris shared his expectation that low interest rates were here to stay and that the search for yield would remain tough. Reinhard Eckl said that “the investment universe has to move to riskier assets” and that the European Central Bank “should develop plans for exit from quantitative easing”. He believes the European Pension Product initiative “addresses the needs of the pension gap” and “offers a channel for long term investment”.

Investment industry experts discuss impact of low interest rates on pensions and insurance funds