German insurers set for triple hit if stocks fall, Bundesbank says

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German insurers are set for a triple whammy if the stock market drops due to their large exposures to investment funds, the Bundesbank said on Thursday. In its Financial Stability…

FRANKFURT, Nov 12 (Reuters) - German insurers are set for a triple whammy if the stock market drops due to their large exposures to investment funds, the Bundesbank said on Thursday.

In its Financial Stability Review, the German central bank also warned about lax mortgage-lending standards and insufficient US dollar buffers at the country's largest banks.

Volatility in US equity markets, where investors have begun to question the lofty returns expected from AI-related investments, has kept regulators worldwide on alert over broader financial stability risks.

The Bundesbank delved into the links between German insurers and investment funds to map out the direct and indirect effects of a stock market fall.

It found that even if markets fell modestly -- with stocks down 7% and bonds by 1% -- the loss would be tangible at 3.5% of net assets for funds and 1.4% of security investments for insurers.

The latter would come from three sources: losses from securities insurers hold directly, an indirect effect from their holdings of investment funds and a further effect from these funds' fire sales of assets to meet redemptions.

"The insurance sector is particularly relevant here, as it is a major investor in the capital markets and holds substantial fund units," the Bundesbank said.

"The indirect losses resulting from contagion and amplification effects from the fund sector are substantial."

Elsewhere in the review, the Bundesbank said 38% of German home-buyers were borrowing more than 90% of the value of the property, increasing the risk of losses in the event of defaults.

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