Moody’s Ratings has revised its outlook for Germany’s property and casualty (P&C) insurance sector to stable from negative, citing an expected improvement in underwriting profitability and a return to more balanced market conditions.
The change reflects Moody’s assessment that the sector’s combined ratio, which measures claims and expenses as a percentage of premiums, will move toward the mid-90s, aligning with its long-term average.
According to Moody’s, the improvement is largely the result of significant premium increases across key business lines.
In motor insurance, where insurers had reported underwriting losses between 2022 and 2024 due to high claims inflation, Moody’s notes that average premiums have risen by about 30% since 2022, helping restore profitability.
In homeowners’ insurance, premiums have increased by roughly 40% over the same period, strengthening underwriting results after several years of strain.
Moody’s cautions, however, that while these price adjustments have been necessary to restore earnings, they also make insurance less affordable and could restrain premium growth in 2026.
The agency highlights that the sector will need time to rebuild its claims reserves and equalisation buffers after years of losses. Favourably, Moody’s reports that natural catastrophe losses have remained low so far in 2025, easing pressure on claims ratios compared with previous years of severe storm and flood events.
Moody’s also points to a supportive macroeconomic backdrop, noting that long-term bond yields have remained stable, benefiting insurers’ investment portfolios and income streams. The agency expects Germany’s economy to grow modestly, projecting real GDP growth of 0.3% in 2025 and 1.4% in 2026, following a 0.5% contraction in 2024.
Inflation is forecast to ease to 2.3% in 2025 and 2.1% in 2026, while the European Central Bank is not expected to make further rate cuts. Moody’s observes that this environment is positive for insurers’ investment performance and capital adequacy, even though subdued economic activity offers limited tailwinds for premium growth.
While the P&C sector’s improved profitability is the primary driver of the revised outlook, Moody’s maintains a stable view on the German life insurance sector.
The agency highlights that longer-term yields continue to support the investment returns of life insurers, enabling them to meet guaranteed rates on savings products. However, Moody’s notes that the sector’s growth remains dependent on single-premium business rather than sustained growth in regular premiums.
Moody’s further emphasises that the broader insurance industry continues to face challenges, including high investment needs related to technology and regulatory compliance. These pressures, combined with limited growth potential, are prompting further consolidation, with smaller and mid-sized insurers joining larger, financially stronger groups.
According to Moody’s, the revision of the P&C outlook to stable reflects the agency’s expectation that underwriting performance will remain solid, supported by higher premium rates, moderate claims experience, and stable yields.
While risks persist, particularly related to pricing pressure and potential natural catastrophe events, Moody’s views the sector’s profitability trajectory and capital position as consistent with a stable outlook.
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