(Reuters) — Germany’s life insurers are mostly prepared for tougher European capital rules coming in from 2016 that aim to shield policyholders from future financial crises, financial watchdog Bafin said.

Bafin looked at the country’s 87 life insurers to see how they would hold up if the new rules, known as Solvency II, were already in effect. Insurers will have 16 years to adapt to the rules from Jan. 1, 2016.

Only a few life insurers with a combined market share of less than 1% fell short on capital, and Bafin will start talks on corrective measures with them immediately, it said in a statement on Wednesday.

But this did not mean other insurers could relax.

“If the low interest rate phase persists, life insurers will need to make considerable efforts to strengthen their capital base during the 16-year transition phase,” Felix Hufeld, in charge of insurance supervision at the watchdog, said.

If Solvency II were already fully in effect as of Dec. 31, 2013, the reference date for Bafin’s review, about 25% of companies with a market share of 10% would have fallen short of requirements. That number probably would have grown in the meantime given the decline in interest rates, Bafin said.

Under current market conditions, the capital shortfall would be around €15 billion ($18.7 billion), Bafin said.

The review showed that insurers need to be prepared for volatility in their capital position, which is sensitive to changes in prevailing interest rates under the new rules.

Bafin said it expected insurers that only narrowly met requirements in the review to bolster their capital.

Big insurers like Allianz, Axa and Generali are deemed well prepared for the new regime. But smaller insurers have struggled to get to grips with the risk-management controls and IT costs the rules entail.

The Bafin survey highlights problems rock-bottom interest rates are creating for insurers’ business models, Ralf Bender, an analyst at credit rating agency Standard & Poor’s, said.

“Generating capital internally through earnings is more difficult in a low interest rate environment,” Mr. Bender said.

“Closing an existing capital shortfall might be easier if you are part of a larger insurance group or if you can access capital markets by issuing hybrid capital,” he said.