(Bloomberg) — German life insurers, including units of Allianz SE and Assicurazioni Generali SpA, will be able meet guaranteed returns promised to customers for a prolonged period of low interest rates, Fitch Ratings said.

“There is considerable pressure on the ability of life insurers to earn a good return on their investments, but Fitch expects rated German life companies to meet policyholders’ guarantees,” Fitch analysts Stephan Kalb and Christoph Schmitt said in a report published today in which the ratings firm “has simulated run-off scenarios with different assumptions.”

The German life-insurance market, Europe’s third largest after the U.K. and France with about 87 billion euros ($108 billion) of premiums, has traditionally featured guaranteed returns that were as high as 4 percent for policies sold in the second half of the 1990s. It has become increasingly challenging to meet these obligations amid falling interest rates on fixed-income assets, where insurers invest the majority of their customers’ premiums.

As a response, life insurers such as Allianz Lebensversicherung, Ergo Lebensversicherung, a unit of Munich Re’s primary insurance subsidiary, and Axa Lebensversicherung have introduced new products that rely less on guarantees.

“Due to the importance of guaranteed credit rates on German insurance policies, low interest rates are viewed by Fitch as the biggest challenge faced by the German life insurance sector,” the ratings firm said.

Not representative

However, the yield on 10-year German government bonds, which hit a record low of 0.69 percent yesterday, shouldn’t be taken as a benchmark for the average guarantee of a typical German life insurance portfolio of 3.1 percent, Fitch said.

“German government bonds are not truly representative of a typical life insurance company’s investment portfolio, which would contain large holdings in other investments with different expected yields,” said Fitch.

“For several reasons companies are still able to meet their guarantees in current market conditions,” the ratings firm said, referring to higher market values of investments and off-balance-sheet unrealized capital gains. German life insurers’ yields on new investments ranged between 2.5 percent and 3 percent during 2014, Fitch estimated.

See also: The 2015 interest rate outlook: 7 questions answered.

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