Fitch upgrades German non-life insurance sector outlook to ‘improving’

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Fitch Ratings, a financial analysis firm operating out of Frankfurt and London, recently announced a notable change in its evaluation of the German non-life insurance sector.

fitch-ratings-logoThe outlook has been elevated from ‘neutral’ to ‘improving,’ driven by expectations of heightened profitability fuelled by robustly increasing premium rates.

Despite some European counterparts, recent trends indicate a narrowing of the gap in price adjustments within the German market.

Forecasts for sector premium growth have been revised upwards, with an anticipated increase of 7 percent in 2024 (up from 6 percent) and 6 percent in 2025 (previously 5 previously), reflecting a strengthening pricing momentum.

Fitch predicts that these adjustments, coupled with easing claims inflation, will lead to a modest improvement in underwriting profitability in 2024, followed by a more significant recovery in 2025. This follows a challenging period, with the sector’s net combined ratio hovering just above breakeven in 2023.

Insights from insurers indicate that recent premium hikes, especially in motor and buildings insurance, have surpassed expectations. Prices have risen by at least 10 percent, and in some cases, up to 20 percent.

The forecasts from the German Insurance Association suggest a 10 percent increase in gross written premiums for motor and buildings insurance in 2024, further highlighting the market’s hardening. This trend mirrors observations in the UK and Italy, where insurers have implemented significant price adjustments, leading to improved sector outlooks.

Despite recent floods in southern Germany, expected to result in gross losses of up to EUR 2 billion, the impact on insurers’ credit metrics is anticipated to be manageable.

Natural catastrophe reinsurance is projected to cover the majority of these losses, given that the event is classified as a single occurrence, in contrast to the multiple storms and floods experienced in 2023.

While reinsurers have reduced coverage for medium-sized natural catastrophe risks and increased prices, primary insurers in Germany and elsewhere have adjusted their pricing strategies.

Consequently, underlying profitability is expected to remain largely unaffected, albeit with potentially increased volatility from year to year.

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