German non-life insurers prepared to meet challenges: Fitch

Fitch Ratings has said that its rating outlook for the German non life insurance sector remains stable.  The sector outlook, an indicator of fundamental trends, is also stable, according to a new report, 2016 Outlook: German Non-Life Insurance - Strong Underwriting Profitability to Be Maintained, by the US-based firm. Fitch said in the report that it considers German non-life companies to be well prepared to meet the sector's current challenges, and does not expect a significant number of rating changes over the next 12-24 months. The firm forecasts that German non-life insurers will maintain strong levels of capitalisation at the end of this year and next year.  “We believe the sector is well prepared to meet the new Solvency II regulatory capital requirements, which come into force on 1 January 2016,” said the firm.“However, the reported regulatory ratios are likely to be lower than the very high levels reported under the old regime.” Fitch also said it expects to see slightly lower growth in German non-life premiums in 2016 of 2 percent, extending the current sustained period of premium growth (2015: 3.0 percent). This follows the sector's strongest premium growth period since 2000 (2014: 4.6 percent; 2013: 4.5 percent; 2012: 5.1 percent; 2011: 4.6 percent), indicating that the sector continues to maintain underwriting discipline through the current prolonged period of low investment yields because growth is driven from increased rates.The company forecasts that the German non-life sector will report a gross combined ratio of 92 percent for 2015 and 91 percent for 2016, provided large weather and catastrophe-related claims remain within levels budgeted by insurers. This follows an improved gross combined ratio of 92.8 percent in 2014 (2013: 100.4 percent) after Germany was hit by claims from exceptionally high natural catastrophe activity in 2013, according to the firm.  Fitch said it expects the sector to report a net underwriting result of € 3 billion (£2.81 billion) for 2015 and € 3.5 billion (£2.54 million) for 2016 following continued premium rate increases.  The sector reported a net underwriting result of € 2.9 billion (£2.11 billion) for 2014 (2013: €0.3bn). Fitch believes that the sector will maintain its strong reserving practices in 2016 as it is likely to have done for 2015, and that claims reserves will continue to increase.