German insurers tipped to prosper despite challenges
German insurers continue to benefit from a strong domestic economy and a return to a more benign catastrophe experience in 2014, although the low interest rate environment overshadows the sector, AM Best has said in a special report on the sector released on October 15.
The rating agency said that demographic factors coupled with the country’s strong economic fundamentals are likely to result in ongoing demand for insurance in the long term. In 2014, insurance penetration was stable at 6.6 percent and there was a near 3 percent increase in total gross written premium (GWP) for a second successive year, driven by expansion across all the insurance sectors—life, non-life and health.
Higher insurance premium rates have been a partial factor in the rise in GWP, combined with an uplift in gross domestic product (GDP) and a fall in unemployment, the report said.
Challenges remain, however. In particular, the difficult environment for generating investment returns is placing significant pressure on German life insurance companies, the report said.
In 2014, the German property/casualty (P/C) sector achieved better underwriting results compared with 2013, driving improved overall earnings for the insurance market. This was primarily a result of reduced losses for natural catastrophes during the year, with hail and windstorm Ela the largest major loss in 2014 causing an estimated €400 million ($456 million) of claims for property and €250 million ($285 million) for motor.
Overall, AM Best said, German insurers have been resilient and in the past few years have absorbed the continued effects of a low yield environment. It noted that should the benign loss environment continue, the German P/C sector is expected to enjoy another good year in 2015, with hard market characteristics being seen in many core lines, particularly property and motor.
