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FOR IMMEDIATE RELEASE
AMSTERDAM - APRIL 03, 2019 08:38 AM (EDT)
AM Best has assigned a negative outlook to the German life insurance market. This reflects pressure from low interest rates remaining the key challenge for the sector, insurers’ limited ability to decrease reliance on traditional policies and operating results remaining under pressure.
A new Best’s Market Segment Report, titled “Market Segment Outlook: Germany Life” states the European Central Bank’s decision to maintain favourable liquidity conditions gives little reason to expect rates to rise in the near term. In this environment, the large duration gap on life policies sold in the past makes the guarantees of these policies increasingly costly. As a result, more and more German life insurers have de-emphasised the sale of these products. As insurers explore optimal solutions to manage their back-books, AM Best expects more portfolios to be placed in run-off, potentially leading to market consolidation.
The report also looks at the impact of the German government approving an amendment to reserving rules in October 2018, introducing an interest rate corridor that effectively decreased the required Zinszusatzreserve (ZZR) contributions from 2018. ZZR is an additional interest rate reserve introduced in 2011, to ensure insurers reserve more effectively for high guaranteed crediting rates during periods of low interest rates. Whilst the recent change will substantially ease the strain on reported operating performance of German life insurers under local GAAP reporting in coming years, results will remain under pressure. AM Best views the economic solvency position of German life insurers as better represented by Solvency II (SII) reporting after excluding transitional measures, although aspects of SII remain problematic. The aggregated balance sheet of the German life segment remains strong, as measured by SII.
AM Best anticipates that the German life insurance sector will continue to address its vulnerability to the low interest-rate environment and its correlated issues by reducing its cost structure as well as focusing on capital-light products. The majority of German life insurance players are attempting to reduce cost by advancing their digital and technological capabilities in order to improve agility and achieve efficiencies that will mostly originate from increased automation and streamlined processes.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=284268 .
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.