According to Fitch Ratings, the German non-life insurance sector is set to grapple with a net combined ratio of 99% for both 2023 and 2024, marking the highest figures since the tumultuous loss years of 2013 and 2002.
The forecast primarily attributes this predicament to mounting claims inflation and substantial reinsurance expenses, deviating from past peaks influenced by extraordinary natural calamities such as severe floods and hailstorms.
Particularly concerning is the motor insurance segment, as highlighted by the German Insurance Association (GDV). With a staggering gross combined ratio of 110% estimated for motor insurance in 2023, Fitch’s prognosis of a 107% net combined ratio echoes the sector’s fragility.
This decline in profitability stems from incessant claims inflation since 2022 and the tightening global reinsurance market, exacerbated by the depletion of excess profits accrued during the pandemic-induced lull in driving activity.
Nevertheless, there is a glimmer of hope on the horizon. Fitch anticipates a resurgence in premium rates across motor and other non-life insurance sectors in 2024, aiming to offset the impact of rising claims inflation and reinsurance costs.
This optimism aligns with a neutral sector outlook for 2024, with a projected slight improvement to a 104% net combined ratio for German motor business.
Yet, the specter of natural catastrophes looms large. Fitch has revised its baseline for normal natural catastrophe losses to EUR5 billion, reflecting a worrisome trend of more frequent and severe events attributed to climate change.
Despite recent flooding in Lower Saxony and other regions, Fitch does not foresee significant repercussions on insurers’ technical results, with gross losses estimated to be less than EUR500 million.
Nonetheless, Fitch remains vigilant, indicating a readiness to revise its assessment as further information unfolds.
