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- Insurance Europe concerned that the European Commission’s proposal for an ePrivacy Regulation could hamper insurers’ ability to offer innovative insurance policies to consumers expired
- ArgoGlobal collaborating with broker Axieme and digital platform Jobby in Italy to respond to a need for on-demand, pay-as-you-go insurance for temporary and short-term workers expired
- LV= General Insurance successfully deploys Guidewire Core and Data solutions in the largest transformation the business has ever undertaken expired
- Marsh announces that it had placed more than 10,000 risks in 2018 through Placing Platform Limited(PPL)-over 15,000 in total expired
- ZhongAn and Grab to establish joint venture company to enter the digital insurance distribution business in Southeast Asia expired
- Greenlight Capital Re becomes largest shareholder in Chicogo-based MGU AccuRisk expired
14th February 2018
S&P reviews German insurance market
Slowly but steadily rising interest rates in Germany could support the insurance industry's financial strength in the long-term, says S&P Global Ratings in a new report.
"However, over the next three to five years, a return to low positive yields would offer only little or no relief to German insurance groups", said S&P Global Ratings credit analyst Birgit Roeper-Gruener. "This is because
investment returns remain under pressure and additional reserving requirements for German life insurers will stay material, while at the same time unrealized bond gains fade away. The positive effects of higher yields, such as higher
reinvestment rates, will only materialize over the long term."
The rating agency added "Property/Casualty insurers should maintain technical profitability and will remain the most important earnings pillar, the report says. We regard the
market environment for German P/C insurers as stable, based on improved underwriting results in recent years. This is mainly the result of sustainable rate increases and ongoing underwriting discipline in the market because P/C
insurers are continuously generating underwriting profits given the muted investment income amid low interest rates. In 2017, the increased focus on risk-adequate pricing continued, and we expect a gross combined ratio of about
95 for the total market.
German life insurers are trapped in a difficult situation in the current
interest rate environment. The additional reserving requirement ("Zinszusatzreserve"; ZZR) is forcing life insurers to put aside extra reserves in the present, while the guaranteed payouts can lie more than a decade in the future. Given the mechanics of the current ZZR regime, the
recent rise in interest rates is still far away from stopping the downward trend of the average reference yield. Therefore, if anything, we expect the annual ZZR requirements to remain very high in 2018-2020, as more tariff generations are required to be additionally reserved for. In 2017, we expect 76% of German life insurers' traditional back books to require additional reserving, trending further upward. What's more, because of rising yields, unrealized gains on bonds are shrinking, which is quickly reducing the main source of funding for the ZZR requirements.
In our view, life insurers that we rate can deliver on annual contractual guarantees when they fall due under our base case interest rate scenario.
However, given the additional reserving needs under the ZZR, we envisage that they will face material pressure on their cash flows over at least the next five years. The key risk for some German life insurers lies in meeting the short-term ZZR requirements and being able to close the local GAAP balance sheet, while regulatory solvency ratios could still be met.
Health insurers' competitiveness may come under pressure because of the still low overall level of interest rates and, more importantly, political risks surrounding a pronounced political reform to the dual health insurance system, comprising private and statutory health insurers ("Bürgerversicherung").
However, under our base-case scenario of a further existing dual health care system in Germany,,we see private health insurers maintaining stable earnings, as they offset medical inflation and lower investment returns through price
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