German life insurance portfolios in run-off to increase significantly

Generali's new strategy for its German operations reinforces the expectation that the volume of German life insurance portfolios in run-off will increase significantly over the next five years, according to an Oct. 9 Fitch statement.

The ratings agency expects that a growing proportion of the run-off business in Germany will be transferred to run-off specialists.

Generali will put its largest German life entity, Generali Leben, into run-off from first quarter 2018, and may consider a future disposal as part of a restructuring of its German operations.

The Italian insurer says the restructuring will increase group economic solvency by 1.7 percentage points (and the solvency of Generali Deutschland by 26 percentage points) and free up resources to support growth in other segments of the German market. Fitch estimates that this will increase the total proportion of the German life insurance sector in run-off from 9 percent (€90 billion of investments) to 13 percent (€130 billion).

Fitch had previously expected the volume in run-off could grow to €150 billion by 2022, but given the size of the Generali Leben portfolio the agency now believes it could reach around €180 billion. The broader trend is driven by low investment yields and higher capital requirements under Solvency II putting pressure on the profitability of traditional products with minimum guaranteed returns.