02 December 2013

Fitch: German non-life insurance outlooks remain stable

The agency considers German non-life companies to be well prepared to meet the sector's current challenges, and does not foresee a significant number of rating changes over the next 12-24 months.

Fitch expects growth in German non-life premiums of between 2 and 3 per cent for 2014, extending the same growth pattern for 2013. This follows the sector's strongest growth in premiums for more than 10 years in 2012 (5.1 per cent) and 2011 (4.5 per cent), indicating that the sector continues to maintain underwriting discipline through the current prolonged period of low investment yields.

Fitch expects the sector to report a strong increase in its net underwriting result for 2014 following material premium rate increases. The agency estimates that the sector will report a reduced, but still positive, net underwriting result of about €0.5 billion for 2013 (2012: €1.6 billion) as adequate reinsurance protection should significantly narrow net losses stemming from natural catastrophes.

"Competition in Germany has continued to decline over the past 12 months, and the sector has maintained underwriting discipline during 2013", says Christoph Schmitt, Director in Fitch's Insurance team. "Fitch expects that gross written premiums will have grown further in 2013 and the trend of increasing premium rates is likely to continue in 2014, even if at a slower pace. Fitch believes that the sector will report improved underwriting profitability in 2014 after the floods and hailstorms are likely to have led to a reduced underwriting result in 2013."

Investment returns are expected to decline to 3 per cent in 2014 from 3.4 per cent in 2013, reflecting the current low interest-rate environment. Fitch has seen some limited increase in risk appetite on the asset side of insurers' balance sheets.

Fitch expects that the sector will maintain its strong reserving practices in 2014 as it is likely to have done for this year, and that claims reserves will continue to increase. The agency believes that slightly less conservative reserving practices in the prior soft cycle may have resulted in some additional reserve strengthening in 2011 and 2012, leading to slower improvement in net underwriting than gross written premium growth.

Full press release

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