Fitch Ratings’ 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. Investment income is also likely to be reduced by negative credit migration.
Fitch expect 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.
Fitch forecast a sector combined ratio of 98% for 2023, relative to our 96% estimate for 2022 (2021: 94%).
Fitch expects 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.
Fitch believe that rates in buildings, property and motor lines will continue to increase in 2023, albeit not sufficiently to cover the rise in claims from claims inflation.
What to Watch Claims Inflation Supports Premium Growth Fitch expects the German non-life market to achieve premium growth of 6% in 2023, up from an estimated 5% in 2022 (2021: 4.6%), due to rate increases in commercial, buildings and motor insurance.
Fitch expect commercial and buildings insurance to report annual premiums growth of at least 6% until 2024. If premium growth would strongly outperform our expectations, the sector outlook could be revised to ‘neutral’.
Prerequisite would be that embedded rate rises are sufficient to compensate for the negative impact from claims inflation.