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Because of their public ownership, Fitch believes that a merger of PS insurers in the legal form of a stock company will be unlikely primarily as public officials are not willing to tolerate the job losses that such mergers may entail in their own region. A public-sector company would remain under public control while a stock company could be divested, allowing offices to be closed.
Further, because public-sector insurers operate in their own tightly defined geographical regions, synergies from mergers are likely to be smaller than for traditional insurers.
Fitch believes that the resilience of PS life insurers to persistently low investment yields is lower than the sector average because of limited earnings diversification. Additionally, PS life insurers held a slightly lower level of funds for future appropriation compared with the German life insurance sector average at end-2012. Fitch believes that capital requirements after the introduction of Solvency II are likely to be challenging for PS life insurers because of their traditional product mix.
PS non-life insurers reported solid underwriting profitability and achieved an average net combined ratio (CR) of 96.2% for 2008-12, which compares favourably with the German market average of 97.1% despite their high market share in German home insurance (the weakest line in underwriting profitability). However, PS non-life insurers are likely to report weaker CRs than the sector average for 2013 because of their higher-than-average exposure to recent floods and hailstorms.