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TEXT-Fitch: German non-life insurance sector rating outlook remains stable

(The following statement was released by the rating agency)

Oct 01 - Fitch Ratings says in a new report that its rating outlook for the German non-life insurance sector remains stable. The agency considers German non-life companies to be well prepared to meet the sector's current challenges, and does not foresee a significant number of rating changes over the next 12-24 months.

Fitch expects German non-life insurers' underwriting profitability to improve in 2012 and 2013 and the sector to report a net combined ratio of 98% and 97% respectively. This compares favourably to 2010 and 2011 when the sector recorded its weakest net combined ratio since 2002, at 99%. Fitch estimates that the sector achieved a small underwriting profit of EUR25m in 2011, and expects it to achieve an underwriting profit of EUR500m and EUR1.0bn in 2012 and 2013 respectively.

The low underwriting result in 2011 was primarily driven by weak underwriting profitability in the motor segment. During 2011, motor gross written premiums increased by 5% after a small increase in 2010 following a decline over the previous five years. Fitch estimates that net combined ratio for motor improved to 107% in 2011 from 109% in 2010, but remained weak. The agency expects that the net combined ratio for motor will improve to 105% in 2012 and improve further in 2013.

"Competition for motor business in Germany has declined over the past 12 months, and the sector has maintained underwriting discipline during 2012," says Christoph Schmitt, Director in Fitch's Insurance team. "Fitch expects that gross written premiums for motor will grow by a further 4% in 2012 and the trend of increasing premium rates is likely to continue in 2013. As motor represents about one-third of total non-life premiums, Fitch believes that the sector will report improved underwriting profitability in 2012 and 2013."

Due to the current low interest rate environment Fitch expects the sector to report a lower net investment return rate of 3.6% for 2012 and investment earnings to decrease to EUR5.0bn from EUR5.4bn in 2011. The agency estimates that German non-life insurance companies were able to achieve a net investment return rate of 3.9% in 2011 (2010: 4.4%).

In common with previous underwriting cycles, the soft phase of the current underwriting cycle has not eroded German non-life insurers' capital (other than through the reduction of equalisation reserves). Gross and net claims reserves continued to increase through the soft market. Reserving practices remained strong, but Fitch believes that they may have been slightly less conservative than prior to the current soft market. Some additional reserve strengthening may have been a reason why net underwriting profitability did not improve in 2011, despite almost 4% growth in gross written premiums.

The report, entitled '2013 Outlook: German Non-Life Insurance - Motor Rates Continue to Recover', is available at .

Link to Fitch Ratings' Report: 2013 Outlook: German Non-Life Insurance

((Bangalore Ratings Team, Hotline: +91 80 4135 5898 Debanjali.Ghosh@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Debanjali.Ghosh.reuters.com@reuters.net))