GERMANY – BaFin, the German financial services regulator, has yet to make a decision on whether to include real estate investments in the so-called “stress tests” that it requires German lifer insurers and insurance-tied pension funds to undergo.

“As far as I know, we are still looking into the possibility that real estate will be included in the stress tests. No decisions have been made yet,” a spokesman for the BaFin in Bonn told IPE.

Under BaFin’s stress tests, first unveiled in 2003, life insurers and pension funds tied to insurers (Pensionskassen and Direktversicherungen) must disclose the extent to which they could financially withstand a sudden drop in the worth of their equity or bond holdings.

Currently, there are three types of stress tests. ‘R-10’ envisions a 10% drop in bond prices, while ‘A-25’ assumes a 25% plunge in equity prices. The third and most stringent test, ‘RA 25’, envisions a 20% drop in equity prices and a 5% drop in bond prices.

BaFin’s comments on whether the tests will include real estate holdings contrasted with those from the Association for German Insurers (GDV).

A GDV spokesman in Berlin said it was his understanding that from sometime next year, real estate holdings would be included. He added that he could give no further detail, as the negotiations between the GDV and the BaFin were continuing.

Meanwhile, the BaFin has yet to sanction a wish among the lifer insurers and insurance-tied pension funds to reduce their guaranteed return on contributions to 2.25% in 2007 from 2.75% now.

In late October, the German Association of Actuaries (DAV) called for the reduction, saying that it was necessary amid persistently low long-term interest rates. BaFin and the German finance ministry usually follow the DAV’s recommendations.