Fitch Ratings: German motor rates decline, catastrophe losses increase

German non-life insurers are likely to continue increasing their premium income in 2020 to maintain profitability in the face of dwindling investment returns, Fitch Ratings says. The credit rating agency’s sector outlook remains stable, reflecting its expectation that insurers will achieve premium growth sufficient to maintain good profitability.

However, Fitch expects motor new business rates to decrease at end-2019 and throughout 2020. In 2018, the motor line reported an underwriting profit with net combined ratio of 96.7 percent for 2018 and Fitch expects the net combined ratio to be about 96 percent for 2019.

“We have observed increased competition during 2019, which forms the base for our expectation of declining rates,” said Fitch.

Fitch notes that average claims for natural catastrophe losses have increased in recent years.

“We typically consider claims of up to €2.5 billion ($2.75 billion) for natural catastrophe losses to represent a normal catastrophe year for the German non-life sector. However, in future we will regard claims of up to €3 billion to be within the range of normal catastrophe activity. This represents an increase of up to 4pp on the loss ratio,” said Fitch.

Fitch forecasts that the German non-life insurance market will report premium growth of 2 percent in 2020, driven by the hardening market in commercial insurance and helped by the strong economic environment.

“We expect overall underwriting performance to remain strong, with strong profitability from individual liability, accident and contents insurance making up for weaker profitability in the commercial lines,” said Fitch. “We forecast an overall 2020 combined ratio of 94 percent, assuming average claims from natural catastrophe activity.

“Buildings insurance stood out as an unprofitable segment in recent years, but we think the segment will have turned profitable in 2019 and will continue to be in 2020, barring significantly above-average catastrophe losses, as insurers push through further rate increases.”

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