Fitch Ratings upgraded its outlook for the German non-life insurance sector from ‘neutral’ to ‘improving’ due to anticipated better profitability from rising premium rates. German premium increases have lagged behind some European insurance markets, but they are catching up.

Fitch Ratings forecasts sector insurance premium growth at 7% in 2024, up from 6%, and 6% in 2025, up from 5%, reflecting stronger pricing.

The anticipated price hikes and decreasing claims inflation should lead to improved underwriting profitability in 2024 and a fuller recovery in 2025.

This follows recent poor results, with the sector’s net combined ratio peaking just above 99% in 2023, barely above breakeven.

German Non-Life Insurance market

German Non-Life Insurance market

The German non-life insurance sector anticipates steady growth in the upcoming years. Key factors include advancements in technology, evolving regulatory landscapes, and shifting consumer behaviors.

Higher fixed-income investment yields are expected to boost overall sector profitability.

Recent data indicates that premium increases for motor and buildings insurance have exceeded expectations, with typical price hikes of at least 10%, sometimes reaching 20%.

The German Insurance Association projects a 10% rise in motor and buildings gross written premiums in 2024, suggesting a hardening market.

The German non-life sector now seems poised to follow trends seen in the UK and Italy, where strong price increases were already underway.

German Non-Life Sector: Year-End Figures and Fitch Forecasts

(%)202220232024F2025F
Gross written premiums (EUR mn)104,863112,000120,000127,000
Premium growth7.75.07.06.0
Net underwriting result (EUR mn)3,2224005001,500
Gross combined ratio93.295.296.095.0
Net combined ratio95.899.399.098.0
Prior years’ reserve release6.05.05.56.0
Investment return rate2.02.32.52.8
Source: Fitch Ratings // Data exclude Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit

Floods in southern Germany this month are not expected to significantly impact insurers’ credit metrics.

Gross losses are projected to reach up to EUR2 billion, but natural catastrophe reinsurance should cover most of this, unlike the multiple storm and flood events in 2023.

GDV data shows that 47% of buildings in Bavaria and 94% in Baden-Württemberg have insurance coverage for all natural hazards.

The economic and insured losses are expected to be in the hundreds of millions of euros, potentially higher.

Thunderstorm activity across various European regions may add tens of millions more in losses. Insurers have already faced significant flood-related claims in Germany this year. In December, floods affected northern and central Germany, while May floods hit Saarland and Rhineland-Palatinate.

Reinsurance coverage

Reinsurers have been reducing coverage for medium-sized natural catastrophe risks and increasing prices, leaving primary insurers with less protection or higher costs for coverage (see TOP Reinsurance Companies in Germany).

Despite this, German non-life insurers have largely adjusted their pricing, maintaining underlying profitability with some potential for increased year-to-year volatility.

The German non-life insurance sector faces a dynamic period of growth and transformation.

By embracing technology, adhering to regulatory changes, and responding to consumer needs, insurers can navigate these challenges effectively. The focus on innovation and resilience will shape the sector’s future success.

German insurance market forcasts

German insurance market forcasts

Insurers must adopt AI and big data analytics to enhance risk assessment and improve customer service. Automation will streamline claims processing, reducing turnaround times and operational costs. Cyber insurance demand will rise as businesses seek protection against growing cyber threats.

New regulations will focus on transparency and consumer protection. Insurers must adapt to ensure compliance, which may involve increased reporting requirements and stricter oversight. These changes aim to foster a more secure and trustworthy market.

Insurers offering tailored policies and digital-first solutions will gain a competitive edge. The shift towards online channels for purchasing and managing policies will continue to grow.

Competition will intensify as new players enter the market. Established insurers must innovate to retain market share. Strategic partnerships and mergers may occur as companies seek to leverage complementary strengths.

According to Fitch, the sector must address the increasing frequency and severity of climate-related events. Insurers need develop more sophisticated models to predict and mitigate these risks.

Nataly Kramer   by Nataly Kramer

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