Deteriorating sector outlook for the German non-life insurance market is deteriorating for 2023, reflecting Fitch’s expectation that inflationary pressure on property and liability claims will overweigh higher fixed-income investment yields. The neutral outlook for the life insurance sector reflects expectation of a mixed operating environment.

German Non-life Insurance Sector

German Life & Non-life Insurance Sector

According to Fitch Ratings, investment income is also likely to be reduced by negative credit migration. Fitch expects underwriting profitability to deteriorate in 2022 and 2023 despite multi-decade high natural catastrophe losses for the sector in 2021.

Large 2021 catastrophe net losses were largely offset by a pandemic-related reduction in claims frequency in 1H21. A sector combined ratio of to 98% for 2023, relative to our 96% estimate for 2022 (2021: 94.0%).

In absolute terms, insurers’ net underwriting result to deteriorate to EUR1.5 billion in 2023 from an estimated EUR2.7 billion in 2022 (2021: EUR3.9 billion), before the change in the claims equalisation reserve.

Rates in buildings, property and motor lines will continue to increase in 2023, albeit not sufficiently to cover the rise in claims driven by claims inflation.

Claims inflation to prevent the sector from lowering reserve adequacy or underwriting discipline despite the general high competitiveness within the sector, especially in the motor and liability lines.

German Life & Non-life Insurance Sector

Rating Outlook Distribution Most German non-life insurers’ rating Outlooks are Stable. Fitch-rated German non-life insurers are well positioned to withstand claims inflation, the elevated capital market volatility and the challenges caused by the general uncertain macroeconomic environment.

Higher expenses from claims inflation and increased claims frequency in German non-life insurance will outweigh the benefit from higher premium rates and increased investment yields, Fitch Ratings says in its latest outlook for the sector. As a result, Fitch has assigned a deteriorating sector outlook.

We expect rate increases to not keep pace with normalised claims frequency and high claims inflation, and that better reinvestment rates will take some time to be reflected in bottom-line profitability

Dr Christoph Schmitt, Director at Fitch Ratings

However, once low-yielding fixed-income bonds will have matured in insurers’ portfolios, we will see a significant improvement in insurers’ investment income.

The deteriorating outlook for the German non-life insurance market is also driven by our view that the high claims inflation and normalising claims frequency coupled with a lag in pricing corrections will put downward pressure on earnings in 2023.

German Life Insurance Sector

German Life & Non-life Insurance Sector

The neutral outlook for the German life insurance sector reflects Fitch Ratings’ expectation of a mixed operating environment, with improving investment yields and strong capital positions, but also declining new business and a generally uncertain investment environment.

The increase in market interest rates over the past year generally improves the situation by lowering the reinvestment risk for German life companies, but the volatility in fixed-income and equity markets has risen, making it more difficult to make investment decisions.

In addition, the strong increase in consumer inflation reduces consumers’ available incomes and we therefore expect it to dampen demand for life insurance products in 2023.

Positive factors are insurers’ diverse business mix, significant earnings from sources that are not interest sensitive, and strong capital positions.

Fitch expects the average Solvency II (S2) coverage ratio, excluding transitional measures on technical provisions, to increase further in 2022, from 262% at end-2021, driven by a further increase in market interest rates.


Yana Keller   by Yana Keller

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