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Germany Insurance Report 2012
Business Monitor International, Nov 2011, Pages: 44
Business Monitor International's Germany Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Germany's insurance industry.
In global terms, Germany has a clear competitive advantage as a provider of insurance solutions. This has developed over the long-term as a result of the key protagonists working together to leverage the country’s key strengths. An obvious advantage is the long-established concept that insurance is a useful vehicle for reducing the risks associated with unemployment or illness.
Within Germany’s Social-Market economy, the basic concept is that individuals must pay out of their own pocket in order to ensure that risks are defrayed – even if there is substantial public sector participation as well. Another key advantage is financial stability and low costs of capital – for a long period. Particular insurers have been able to benefit from associations (ie in terms of branding and distribution) with the powerful Sparkassen savings banks and Raiffeisen co-operative banks.
Furthermore, the insurance sector has not faced problems in recruiting the skilled labour that it needs: unlike their counterparts in France (especially), the UK or Italy, Germany’s global insurance companies (and massive if domestic-focused organisations) are not concentrated in particular – and very high cost – commercial hubs. For the achievements of Germany’s insurance sector, credit is also due to BaFin, the regulator, and the GDV, the trade association.
The life segment has in recent years been boosted by the development of pension funds and the pensionskassen – essentially tax advantaged long-term savings schemes which the insurers have been well placed to provide. The latest corporate results indicate that the segment has been shrinking in the recent past. To a certain extent, this is the result of particular companies taking a deliberate decision not to pursue particular lines of business. However, it is clear that Germany’s life segment will remain substantial and profitable – almost regardless of what happens to the economy.
The globality of the direct non-life operations of Allianz and Talanx, as well as the nature of the (main) business of Munich Re and Hannover Re, mean that the largest players are exposed to the wave of extraordinary catastrophes in Japan, Australia, New Zealand and the USA (among other places) that have taken place over the last 12 months or so. Nevertheless, it is clear that – like the major reinsurers in the UK and Bermuda – they have tremendous capacity to bear the losses. Their absolute scale, ability to price risks and access to low cost capital are clear advantages. If there is a major challenge, it is a global environment of low nominal interest rates.
(Re)insurers who are operating in lines where combined ratios are unfavourable will find it harder to make gains through investment income than they have for much of the last 20 years. However this problem is not confined to Germany. If the state of global capital markets – and (perhaps unforeseen) impacts of the European Union’s Solvency II regime present difficulties, they do so to insurers across Europe (and, indeed, further afield). In the event that there is a wave of consolidation within what is a fairly fragmented global industry, the German giants will likely be beneficiaries.
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