which a low interest rate environment extends for a long time into the future cannot be ruled out, it is important to assess its possible impact on financial institutions in order to identify the appropriate responses. the main vulnerabilities for life insurance companies and pension funds would result from maturity and yield mismatches between assets and liabilities. as identified by the 2014 stress test conducted by eiopa, a low interest rate scenario could put under particular pressure the profitability and resilience of insurance companies with long - term guarantees and negative duration gaps, leading to shortages in their solvency capital ratio. the risk is significant in some euro - area countries ; it may be less marked in italy, thanks to a fundamentally balanced financial structure. to mitigate profitability concerns, life insurance companies and pension funds will have to adapt their business strategies. so far, actions taken by insurance companies have differed bis central bankers ’ speeches depending on whether they are related to new or existing products. for new contracts, there is a general trend to offer lower or no guarantees and develop other types of products, including unit linked policies, in which the risk is held by policyholders and beneficiaries. this is also a response to the new solvency ii prudential regime, which requires additional capital for guaranteed products. for existing contracts, the main actions consisted in reducing the shares of returns distributed to policyholders and, where legally feasible, the renegotiation of contract terms. as far as retirement savings are concerned, the persistently low market yields have strengthened the tendency, already established, to replace defined benefit schemes with defined contribution schemes. the mechanisms to mitigate the risk of the underfunding of defined benefit schemes vary across national jurisdictions ; they include increased capital buffers, additional sponsor support and guarantee funds, as well as the reductions of accrued benefits. from a regulatory viewpoint, the introduction of solvency ii for european insurance companies is a major turning point. the new regulatory regime is a valid tool for mitigating portfolio risks. some provisions were introduced in solvency ii to dampen the impact of interest - rate volatility on insurance companies ’ balance sheets, such as those related to the parameters for the extrapolation of risk - free interest rates at very long - term maturities and other measures that are meant to smooth the transition to the new prudential regime ; such provisions may also reduce the impact of a prolonged situation of low interest rates. the scope for portfolio diversification has been

’ italia staff ( which do not consider further possible non - linear effects ) show that in the absence of the measures adopted between june 2014 and december 2015, both annual inflation and gdp growth in the euro area would be lower by about half a percentage point in 2015 – 17. the expansion of economic activity in 2015 would have been slightly below 1 percent, against an observed 1. 6 percent ; inflation would have been negative, at about – 0. 5 percent, against 0. 0. these estimates are consistent with those of the eurosystem and the ecb staff. in italy, the effects are estimated to be even stronger. from a medium - term perspective, the financial stability implications of a low interest rate environment require a deeper assessment of the fundamental forces shaping real interest rates. in the current debate there are varying views. according to the “ debt super - cycle ” view, interest rates, growth and inflation are low because of the legacy of the financial crisis ; in the medium term they will go back to “ normal ”. according to the today fashionable “ secular stagnation ” hypothesis, advanced economies suffer from a persistent imbalance resulting from an increasing propensity to save and a decreasing propensity to invest ; excessive savings act as a hindrance to growth and inflation, and pull down real interest rates. a number of supply and demand factors, all characterised by a high degree of persistence, have been considered to justify this imbalance. demographic developments, high demand for safe assets in emerging economies, increases in wealth and income inequality and a permanent decrease in total factor productivity are the main examples. if we accept, instead, the view of those who suggest that we are in a transition towards the “ second machine age ”, low interest rates may be seen as the result of an adjustment temporarily characterised by weak demand and high unemployment ; in the longer run, productivity gains due to the ongoing digital revolution and many other current and foreseen technological innovations will increase economic growth and raise real interest rates, even if with uncertain consequences for the distribution of incomes. it is not easy to assess which of these views is more likely to be confirmed by the future evolution, but none of them can be totally dismissed a priori ; future developments could result in a combination of these different hypotheses. all this considered, it is conceivable that real interest rates will go up in future years, but how far in the future this will occur is very difficult to assess. since a scenario in