Fitch Ratings suggests its sector outlook for the German non-life insurance market is deteriorating for 2023, as the firm expects inflationary pressure on property and liability claims to outweigh higher fixed-income investment yields.
Further, Fitch anticipates underwriting profitability to deteriorate in 2022 and 2023, despite multi-decade high natural catastrophe losses for the sector in 2021.
Spelt out, Fitch expects that insurers’ net underwriting results will deteriorate to €1.5 billion in 2023 from an estimated €2.7 billion in 2022, before the change in the claims equalisation reserve.
Meanwhile, rates in buildings, property and motor lines will continue to increase in 2023, though not enough to cover the rise in claims driven by claims inflation.
Fitch writes, “We expect claims inflation to prevent the sector from lowering reserve adequacy or underwriting discipline despite the general high competitiveness within the sector, especially in the motor and liability lines.”
The rating agency forecast a sector combined ratio of to 98% for 2023, compared to its 96% estimate for 2022 and 94% estimate for 2021.
Overall, most Outlooks are Stable, with Fitch noting that its rated German non-life insurers are well positioned to withstand claims inflation, the elevated capital market volatility, and the challenges caused by the general uncertain macroeconomic environment.
Dr Christoph Schmitt, Director at Fitch Ratings, added, “We expect rate increases to not keep pace with normalised claims frequency and high claims inflation, and that better reinvestment rates will take some time to be reflected in bottom line profitability.
“However, once low-yielding fixed-income bonds will have matured in insurers’ portfolios, we will see a significant improvement in insurers’ investment income.”