Global credit ratings agency AM Best has confirmed that it is maintaining it’s Negative outlook for the German non-life insurance segment, citing subdued growth prospects on an inflation-adjusted basis, as well as persistent claims inflation and a competitive environment affecting underwriting profitability.
The agency also cited natural catastrophe losses, which are leading to volatility in results.
Best stated that the persistent heightened claims inflation environment is “challenging the German non-life insurance segment’s growth prospects.”
Interestingly, current forecasts are indicating that the non-life segment is likely to experience premium growth on a nominal basis.
The agency also explained how premium growth levels are reflecting inflation driven rate adjustments, however, they remain subdued by the weak economic growth perspective, as well as an increasingly competitive environment.
Moving forward, Best noted how all major non-life insurance business lines witnessed growth in 2022. This largely came down to robust price momentum in some lines, as well as positive, although subdued economic growth.
The effects of inflation on insured values is expected to result in favourable increases in premium levels, either through repricing or automatic rate adjustments. Real premium growth in 2023 has been majorly impacted by weak economic development, which is a driver that the we may see continue into the first half of 2024, warns Best.
Further, the agency explained that the German property market is subject to volatility in it’s results due to it’s exposure to potentially large weather losses that can considerably add to the segment’s claims burden.
While, weather-related loss occurrences in 2022/2023 to date have remained in line with long-term averages, evolving climate risk could potentially lead to more volatility in both the frequency and severity of weather-related events in the years to come.
Best explained that it believes that the majority of German non-life insurance firms are well positioned to manage the financial impacts of weather-related catastrophes. This is due to most carriers benefitting from adequate access to reinsurance capacity and comprehensive aggregate reinsurance covers.
