Rating agency A.M. Best has maintained a stable market segment outlook on Germany’s non-life insurance market, based on solid rate adjustments in core business classes and strong balance sheets among market participants.
Analysts said rate adjustments were keeping pace with claims inflation, thereby supporting robust technical profitability, while balance sheet strength was positioning companies to withstand potentially challenging market dynamics.
Despite the stable outlook, A.M. Best said that challenges remain for non-life insurers, including a slowdown in the economy and persistently low interest rates.
Motor and property insurance, which are Germany’s two largest insurance lines and account for 70% of total non-life premiums, saw rate increases of approximately 3% and 4.5% in 2018, respectively.
The impact of adverse weather events will continue to contribute to market performance volatility over the long term, A.M. Best said, as natural catastrophe risk in Germany is considerable and insurers tend to retain a high proportion of retail risks.
In 2018, natural catastrophes such as windstorm and hail events resulted in insured losses of around €2.7 billion for property risks, which was the highest annual amount since 2013.
However, the non-life market maintains a robust level of capital adequacy, helped by good retention of earnings, and A.M. Best believes the market continues to be well-positioned to withstand challenges that may arise from increasing competition and natural catastrophe losses.
Additionally, surplus capital provides a buffer to adverse performance, and a continuous focus on enterprise risk management, due in part to the implementation of Solvency II, has led to an improvement in the control and oversight of key risks.
A.M. Best expects insurers to continue to focus on underwriting operations in order to strengthen profitability, although a shift in the current investment environment or capital market volatility could lead to a decline in underwriting discipline or overall performance in the long term.