Fitch Ratings has revised its sector outlook for the German property insurance market to “improving” from “neutral” in June 2024 as the rating agency forecasts improved underlying profitability supported by sharply rising premium rates in motor and property insurance.
According to a recent Fitch report, the industry premium is forecast to increase to 7% (from 6%) in 2024 and to 6% (from 5%) in 2025, reflecting stronger price dynamics.
“Fitch expects price increases and moderating claim inflation to lead to a slightly improved underwriting result in 2024 and a broader recovery in 2025, as high natural catastrophe activity in the first half of 2024 is likely to impact underwriting results in 2024,” the analysts said.
He noted: “We forecast an underwriting result of €1.5 billion for 2025 and €500 million for 2024, compared to the expected €400 million in 2023. The profit margin will continue to benefit from reinvestment rates higher than those of the maturing fixed income investments. We forecast that the investment yield will increase by 20 to 30 basis points annually at least for 2024 and 2025.”
The agency forecasts premium growth for the German non-life insurance market in 2024 and assumes that this will benefit from claims inflation.
Fitch expects premium growth of 7% (after an estimated 5% in 2023) due to premium increases in motor and property insurance. According to analysts, the strong growth is due to necessary premium adjustments to reduce underwriting losses in the motor and property lines.
“We expect both lines of business to report underwriting losses in 2024 and 2025, albeit with an improving trend,” Fitch said.
The agency also expects insurers to continue their rate increases and strong premium growth of 6% in the market in 2025.
They came to this conclusion after observing that loss inflation in both lines of business exceeded insurers’ expectations in 2022 and 2023 and that companies reported high underwriting losses for both lines of business in 2023.
“If premium growth falls significantly short of our expectations, the outlook for the German non-life insurance sector could be revised to ‘neutral’. This would require that the embedded premium increases are not sufficient to improve profitability in the insurance business,” Fitch noted.
