The German life insurance sector has suffered its first company collapse in 50 years.
Mannheimer faces bankruptcy after the German insurers federation decided against supporting a proposed 370m euro (£255m) bail out.
The regulator said policyholders will continue to be paid because the firm's assets and contracts will be moved into a safety net firm.
The regulator also stressed that Mannheimer's woes did not imply a sector-wide crisis - and it said no other life insurers were facing a similar funding crunch.
But analysts are predicting more trouble ahead because of the decline in stock markets.
Press reports have suggested two thirds of German life assurers are risking insolvency.
Munich Re holds a 10% stake in Mannheimer.