Fitch: German Life Insurance Sector Outlook Negative; Rating Outlook Stable

Fitch Ratings says in a new report that the sector outlook for German life insurance, an indicator of fundamental trends, remains negative, given a challenging operating environment. However, Fitch believes that the pressures on German life companies are manageable, yielding a Stable Rating Outlook.

The German life insurance industry is operating in a difficult environment of low investment yields and earnings pressure. Market interest rates are likely to remain at historical lows for longer and constitute the biggest challenge for the German life insurance industry, in light of significant asset-liability duration mismatches.

Nevertheless the Stable Rating Outlooks of German life insurers are supported by their diverse business mix, significant earnings from non interest-sensitive sources and still fairly strong capital positions. Fitch has simulated run-off scenarios with different assumptions and found that rated German life insurers will be able to meet their guarantees for a prolonged period, even if interest rates remain low, albeit at the expense of profitability. Fitch will continue to monitor developments.