S&P: Competition Hurts German P-C Insurers

NU Online News Service, Aug. 20, 3:30 p.m. EST?Standard & Poor's Ratings Services said today that it is maintaining a negative outlook on the German property-casualty sector, but that flood claims in Europe are not the cause of the rating agency's concern.

The negative outlook mainly reflects concerns over the sustainability of rate increases in the German motor market and a weakening of investment returns in global and domestic equity markets, S&P said.

Recent flood claims may "add to the woes of German non-life insurers, but are expected to be relatively low in proportion to the overall cost," the rating firm said in a statement.

The statement noted that current flood losses in the northern and southeastern regions of Germany will have a negative impact on the loss ratios of some insurers, adding, however, that many?although not all?German insurers exclude flood risk from their non-life property, motor, industrial, and business policies.

On their own, flood claims are not expected to significantly affect the ratings of securely rated insurers because of the exclusions, but such claims will contribute to the generally challenging conditions for German non-life insurers, S&P said.

The rating agency said that while no reliable cost estimates for flood claims are yet available, it will closely monitor the possible impact on insurers' operating performance, commenting further once individual insurers' claim figures are announced.

Turning to the bigger negatives for German insurers, S&P noted that rate increases are slowing in the German motor market?a line which accounted for 42 percent of all non-life premiums written in 2000.

"Alarmingly, the market is showing signs that it has reached the top of the cycle after just two and one-half years of rate increases," said Standard & Poor's credit analyst Karin Clemens.

She added that "the German motor market has not had enough time to recoup its losses from the last low point in the cycle."

Price competition in the motor market at this point could reduce the financial strength of many non-life writers, S&P said, noting that the situation is exacerbated by a significant weakening of global capital markets and, in particular, high volatility in the domestic German equity market.

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S&P: Competition Hurts German P-C Insurers

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