The German non-life insurance sector remains stable according to Fitch Ratings. German non-life companies are well prepared to meet the sector’s challenges, and there should not be significant rating changes over the next 12 to 24 months.
German non-life underwriting profitability should improve in 2011/2012, and the sector should report a net combined ratio of 98%/97%. This compares favourably to 2010 when the sector recorded its weakest net combined ratio since 2002, at 99%. Fitch estimates that the sector achieved a small underwriting profit of EUR25m in 2010, and expects it to achieve an underwriting profit of EUR500m/EUR1.0bn in 2011/12.
The low underwriting result in 2010 was primarily driven by weak underwriting profitability in the motor segment. During 2010, motor gross written premiums increased by 0.5% after declining for five years in a row. However, the net combined ratio deteriorated to 106% from 104% as claims increased by more than 3% that year. The agency expects that the net combined ratio for motor will improve to 104% in 2011 and further in 2012.
“German non-life insurers’ competition for motor business has slowed over the past 12 months, and the sector has maintained underwriting discipline in 2011 so far,” says Christoph Schmitt, Director in Fitch’s Insurance team. “Fitch expects that gross written premiums for motor will increase by a further 4% in 2011 and the trend of increasing premium rates will continue in 2012. As motor represents about one-third total non-life premiums, Fitch anticipates that the sector will report improved underwriting profitability in 2011 and 2012.”
Due to the low investment yield environment and the sharp decline in DAX30, Fitch expects the sector to report a lower net investment return rate of 3.9% for 2011 and investment earnings to decrease to EUR5.4bn in 2011 from EUR6.0bn in 2010. German non-life insurance companies were able to achieve a higher net investment return rate of 4.3% (2009: 4.2%) in 2010, based on Fitch’s calculations.
In common with previous underwriting cycles, the soft phase of the current underwriting cycle has not eroded German non-life insurers’ capitalisation (other than through the reduction of equalisation reserves). Gross and net claims reserves continued to increase through the soft market. Reserving practices remained strong, but Fitch believes that they may have been slightly less conservative than prior to the current soft market.
Source : Fitch Ratings
