AM Best, the global credit ratings agency, has confirmed that it is maintaining its negative outlook for the German non-life insurance segment, citing moderate growth on an inflation-adjusted basis, as well as a persistent claims inflation and competitive environment impacting underwriting profitability.
In a new report, the agency reveals that it expects the German non-life segment to experience premium growth on a nominal basis over the next 12 months, however, premium levels are likely to be static or show marginal growth only on a real basis.
Moreover, the country’s economy is set to continue its path towards a sluggish recovery in 2025, in the face of continued headwinds, including the collapse of the German coalition government and high industrial energy costs.
AM Best also expects inflationary pressures to continue to pose challenges for non-life insurers, going forward.
“German non-life insurers have the flexibility to manage temporary increases in prices, however AM Best believes that stubbornly high motor repair, as well as building, costs remain a challenge for the segment,” the report reads.
All in all, AM Best predicts that the segment will report an average net combined ratio close to breakeven at year-end 2024, which may marginally improve in 2025 as more rate discipline feeds through in response to continued claims inflation and a larger number of weather-related larger losses in 2024.
Sticking with weather-related events, AM Best also noted that it believes most German non-life insurers are well positioned to withstand the financial impact of weather-related catastrophes, due to most carriers benefiting from adequate access to reinsurance capital and comprehensive aggregate reinsurance covers.
However, it’s certainly no secret that the cost of reinsuring natural catastrophe events has risen sharply because of general hardening conditions in the reinsurance market, and as a result, insurance companies have ended up buying reinsurance at higher attachment points, which is likely to result in greater earnings volatility.
Lastly, AM Best revealed that it could revise the segment’s outlook to stable in the future if inflationary pressures were to ease, and if the market moves to re-price risks ahead of the inflationary impacts on technical profitability.
