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Germany Insurance Country Overview

2013


Table of Contents 1. Macroeconomic Scenario ................................................................................................. 3 2. Insurance Market in Germany .......................................................................................... 4 2.1 Non-Life Segment ............................................................................................................................ 5 2.2 Profitability ...................................................................................................................................... 5

3. Competitive Scenario ....................................................................................................... 7 3.1 Non-Life Insurance ........................................................................................................................... 7

4. Distribution and Regulations ............................................................................................ 8 5. References ....................................................................................................................... 9

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1. Macroeconomic Scenario

Source: IMF

Germany is the largest economy of Europe and its economic activity is relatively robust – wages are rising and inflation expectations are well established. Fiscal deposit is narrowing (from 4.3 percent in 2010 to 1 percent in 2011); corporate and household balance sheets are healthy. Banks have ample liquidity and maintain adequate levels of regulatory capital, and lending rates are lower than other parts of Europe. The economic conditions are now in place for a domestic demand-led growth. Inflation has picked up due to higher energy prices, but core inflation remains well under control.

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2. Insurance Market in Germany Insurance Penetration in Germany (%)

6.71%

3.25% 2.24% 1.21%

2007

6.65%

3.22% 2.21% 1.23%

7.22%

3.59%

7.22% 7.22%

Insurance Premium Written in Germany (â‚Ź Bn)

164.5

171.5

178.9

178.1

178.4

84.9

86.2

88.5

91.3

91.8

79.6

85.3

90.4

86.8

86.6

2007

2008

2009

2010

2011

3.65% 3.38%

2.30% 2.23% 2.20% 1.33%

1.34% 1.35%

2008 2009 2010 Total Life Health

2011 Non-Life

Life

Non-Life

Source: Gesamtverband der Deutschen Versicherungswirtschaft (GDV), A.M. Best research

The German Insurance market is mature and there is little organic growth. German economy has recovered from the Global Financial Crisis, which has translated into reasonable growth figures for the non-life market. In 2012 the German insurance industry faced a challenging economic environment. Continued low interest rates also made matters tough for the industry – particularly for life insurers. The insurance industry has on the whole been stable considering the difficult overall conditions. Premium income increased slightly, spanning various lines of business, reaching its highest level since 1990. Property and casualty insurance have not experienced such vigorous growth since 1994, and life insurance business with regular premium payments grew moderately for the second time in a row since the financial crisis.

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2.1 Non-Life Segment Non-Life Insurance by Segment in Germany, 2012

In 2012, all branches of the Property and Casualty insurance segment gained due to healthy sales revenue and the highest premium growth since deregulation of the insurance industry in 1994. The increase in premium income in motor insurance was particularly strong, driven by hikes in premiums in both existing and new business. Property insurance experienced the second highest growth rate, which was also the largest increase in ten years. Rise in insured real estate values mainly contributed to this trend. The liability insurance business has gained from positive development of revenues and payrolls in many sectors of the economy.

2.2 Profitability Germany Non-Life Claims Ratio by Line (%)

Germany Non-Life Combined Ratio by Line (%)

Source: Gesamtverband der Deutschen Versicherungswirtschaft (GDV), A.M. Best research

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Motor insurance underpinned the growth in non-life premiums in 2011 as the sector strengthened rates. Rates for motor fleets were also increased, while some insurers cancelled policies that were attracting high losses. Motor rate rises are expected to continue throughout 2012, although claims remain high. Despite rate increases, motor business remains unprofitable, and in 2011 this class of business incurred the greatest losses. The motor market remains very competitive, and motor physical damage claims were high in 2011. Property which is the second largest line of business accounting for 27.3% of non-life premium in 2011 experienced 2.1% growth in GWP. Although rates for private home insurance remain under pressure, particularly for non-catastrophe exposed risks, insurers are attempting to reduce limits and increase rates for catastrophe-exposed commercial property risks. Combined ratios for both private property insurance and commercial business improved by 2.6 and 1.2 percentage points respectively. The German non-life insurance market posted an improved total combined ratio of 97.9% in 2011 as compared to 2010’s combined ratio of 98.2%, although this was a particularly a poor year for losses, with freezing weather conditions at both the beginning and end of the year resulting in increased attritional claims, as well as claims resulting from windstorm Xynthia.

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3. Competitive Scenario 3.1 Non-Life Insurance Leading Insurance Providers in Non-Life Segment Gross Premiums Written, 2012

Gross Combined Ratio, 2012

Source: Gesamtverband der Deutschen Versicherungswirtschaft (GDV), A.M. Best research, BestLink Global Statement File

Non-Life German insurers are robust, with companies anticipating a modest increase in premium in 2012, provided there are no major catastrophes for the remainder of the year, and the sector should be well positioned to post an improved combined ratio. In the first half of 2012, it appeared that motor rate increases would be sustained, although combined ratios were expected to remain in excess of 100%, reflecting years of competitive pricing. The growing use of comparison portals over the past few years has increased competition and places further downward pressure on prices. In particular aggregators are growing in popularity for personal lines such as motor, where margins are already tight. Consequently, the market share of tied agents has been reducing for these lines of business.

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4. Distribution and Regulations Distribution The regional concentration of earned premiums and intermediaries reflect the fragmented markets and industries in Germany and local visibility is important for success. For commercial business distribution can be split into 3 different channels: In-house Brokers Brokers Tied agents – one third each Independent brokers play a strong role for reasons of specialization, regionalization and history. The large Industrial Business is controlled by in-house brokers. Key Trends in the German Insurance Market: Personal Lines Trends – –

Apart from market leaders Check24 and Transparo, Google is rumored to setting up price comparison website Online motor insurance sales is accelerating; as noticed by insurers

Commercial Lines Trends – –

Inex24 is offering online submission and processing of offers Also offering Automatic pre-sorting and filing of messages, notes, decisions

Regulatory environment The insurance supervision system in Germany is currently under scrutiny in addition to substantive reforms to supervisory law (Solvency II, the revision of the Insurance Supervision Act). The German government is planning to reform the national supervision of the financial services industry. The German insurance industry supports the call of the G20 for expanding macro-prudential supervision of the capital markets and for closer regulation of systemically important financial institutions. The International Association of Insurance Supervisors (IAIS) is trying to respond to the progressive globalization of the insurance sector by developing a „Common Framework for the Supervision of Internationally Active Insurance Groups“(ComFrame). The aim of this initiative is to establish a framework which promotes close cooperation among national supervisory authorities with respect to the supervision of internationally active insurance companies and the closing of regulatory gaps.

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5. References Gesamtverband der Deutschen Versicherungswirtschaft (GDV) Talanx Lloyd’s Marketline

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