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.
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.
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 in 2023, from 262% at end-2021, driven by a further rises in market interest rates.
Reinvestment Rates Are Improving: The rise in market interest rates brings fixed-income reinvestment yields now close to the effective guarantees of the business in force portfolio, which considerably reduces reinvestment risks.
by Yana Keller
