An increasing number of German mutual insurers are merging, with a common trend toward greater diversification in business lines and increased scale amid sharply rising IT costs, according to Berenberg analysts.
In 2024, four mergers have either been announced or completed among German mutual insurers: Barmenia with Gothaer, Ostangler Brandgilde with Landesschadenhilfe, Stuttgarter with SDK, and SHB (a specialist insurer for bakeries) potentially with Signal Iduna.
These mergers typically feature increased diversification in business lines (for example, Barmenia and SDK are mainly health insurers merging with generalist insurers) and enhanced scale to better manage sharply rising IT costs.
Berenberg identifies several key drivers of consolidation in Germany, including the need for diversification amid increasing natural catastrophe costs and rising regulatory expenses, such as the Digital Operational Resilience Act (DORA) and the Corporate Sustainability Reporting Directive (CSRD). Additional pressures include the higher cost of transferring risk to reinsurers following a significant increase in attachment points in 2023, ongoing claims inflation in motor insurance due to rising spare part costs, and reserve depletion. Data from Assekurata shows that German motor insurance equalisation reserves fell from EUR 5.3 billion in 2021 to EUR 3.05 billion in 2023, reducing the ability to smooth profits.
Additionally, the absence of Viridium from the buyout market is another factor contributing to this trend. Until 2023, German insurers could sell their German life back-books to Viridium to free up capital. This option is currently unavailable because the German regulator, BaFin, has required Viridium to find a new majority owner to replace Cevian before approving further deals.
Berenberg believes that these mergers could lead to more rational pricing in motor insurance and other lines as the sector consolidates. However, analysts caution that this benefit is indirect, and they expect mutuals to refrain from putting themselves up for sale to a listed insurer.
Analysts highlight Munich Re as the best evidence of a successful composite business model. Over time, Munich Re has evolved from primarily a property and casualty reinsurer to a more diversified composite in terms of its business mix.
