Better motor and buildings insurance results support German non-life earnings: Fitch

Fitch Ratings has revised its sector outlook for the German non-life insurance market to ‘improving’ from ‘neutral’ in June 2024, as the rating agency predicts better underlying profitability supported by strongly rising premium rates in motor and buildings insurance.

According to a recent Fitch report, the sector premium is now forecasted to grow to 7% in 2024 (from 6%) and 6% in 2025 (from 5%), reflecting the stronger pricing momentum.

“Fitch expects price increases and easing claims inflation to lead to a marginally better underwriting result in 2024 and a fuller recovery in 2025 because high natural catastrophe activity in the first half of 2024 is likely to constrain underwriting earnings in 2024,” analysts stated.

Noting: “We forecast an underwriting result of EUR1.5 billion for 2025 and EUR500 million for 2024, up from an expected EUR400 million in 2023. Bottom-line profitability will continue to benefit from reinvestment rates being higher than those of the maturing fixed-income investments. We forecast the investment return rate to increase by 20bp–30bp annually, at least for 2024 and 2025.”

As the agency predicts premium growth for the German non-life market in 2024, it believes this will benefit from claims inflation.

Fitch expects premium growth of 7% up from an estimated 5% in 2023, due to rate increases in motor and buildings insurance. The strong growth, according to analysts, is driven by needed premium adjustments to reduce underwriting losses in the motor and buildings lines.

“We expect both lines to report underwriting losses in 2024 and 2025, albeit with an improving trend,” Fitch stated.

The agency also expects insurers to continue with rate increases and strong premium growth of 6% for the market in 2025.

This conclusion followed their observation regarding both lines’ claims inflation exceeding insurers’ expectations in 2022 and 2023, and the companies reporting high underwriting losses for both lines in 2023.

“If premium growth were to strongly fall below our expectations, the German non-life insurance sector outlook could be revised to ‘Neutral’. A prerequisite for this would be for insufficient embedded premium rate rises to improve underwriting profitability,” Fitch noted.

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