Fitch Ratings raises its baseline assumption for German insured catastrophe losses as it forecasts a 99% net combined ratio for 2023 and 2024 for the non-life sector in the country, the worst in recent times.
Yet the sector outlook remains neutral, Fitch notes, due to easing claims inflation, rising premium rates and better fixed-income investment yields.
According to the agency, this forecast is mainly driven by claims inflation and high reinsurance expenses, when previous high ratios were due to extraordinary natural catastrophe events.
Unlike Fitch, the German Insurance Association (GDV) does not publish a net combined ratio for the market, but it recently estimated a gross combined ratio for 2023 of 98%, with a particularly high 110% gross combined ratio for motor insurance.
Fitch a 107% net combined ratio for motor insurance in 2023, which according to analysts would be the weakest since 2011.
High claims inflation hardening of the global reinsurance market has been weakening its profitability since 2022. Profitability has also been under pressure due to the deployment of excess profits from 2020 and 2021 (when Covid restrictions limited driving activity and claims) to offer highly competitive premiums to attract and retain customers, analysts explain.
Fitch expects “motor and other German non-life premium rates to rise in 2024 to better reflect the impact of claims inflation and higher reinsurance costs.”
Analysts note: “This supports the neutral sector outlook for 2024 that we published in late 2023 and our forecast of a slightly better net combined ratio of 104% for German motor business in 2024, although the rate increases in Germany are unlikely to be as strong as in some other European non-life markets.”
Despite unremarkable catastrophe losses in 2023, Fitch raised its baseline level for normal natural catastrophe losses to €5 billion from €3 billion.
This move analysts highlighted, “reflects the underlying trend of more frequent and severe loss events due to climate change, together with increased rebuilding and repair costs for properties, and increased repair costs for vehicles.”
Fitch also noted that it does not expect the flooding that affected Lower Saxony and other regions in early 2024, to materially affect insurers’ technical results.
This is mainly due to the expected gross losses to likely be less than €500 million. However, the agency stated it will revise this view as the picture becomes clearer.
