Moody’s maintains negative outlook for German insurance

The fundamental credit outlook for the German insurance market remains negative, primarily reflecting continued margin weakness in life insurance and negative rate pressure in motor business, Moody's Investors Service said in its new Insurance Industry Outlook on Germany.
The negative outlook follows a difficult year of investment losses, economic woes, pressure on life margins and the continued weak rate environment within the motor business. We expect some settling within the investment portfolios in the rest of 2009 and 2010, but the weak economy will continue to pressure premium volumes, margins and rates," said Paul Oates, lead analyst for the German insurance market.
Despite these weaknesses, the larger players in the German market are continuing to undertake reform to address these structural issues. Moody's noted that most of the large players are important components of major European insurance groups and their ratings, which have 'stable' outlooks, reflect the strong support and cohesiveness of these groups.
Profitability in life insurance remains constrained, as high guarantees in traditional business are placing pressure on insurers as interest rates are at historic lows. Moody's expects the growth in unit-linked insurance to slow in 2009 as consumers become wary of products that carry significant investment risks in the short term and look for more stable returns provided through traditional life insurance or bank savings products.
"The continued low premium rate levels for motor insurance remains a negative factor for the non-life industry, although strong rates in property lines and good cost controls have managed to offset some of the weaknesses seen in motor," explained Blake Foster, associate analyst and co-author of the report. However, the spectre of claims inflation looms in 2009 and 2010, particularly for motor and property lines where Moody's expects repair and rebuilding costs to grow as garages and builders seek to increase margins to offset lower car sales and house building.