Moody's sees big German insurers getting bigger
FRANKFURT, July 2 (Reuters) - Germany's big insurance groups are expected to cement their dominant position in a difficult domestic insurance market over the next 12-18 months, credit rating agency Moody's said on Wednesday.
"Moody's expects the top players to maintain or even expand their strong market positions throughout the rest of 2008 and beyond, principally through increasing new business rather than merger and acquisition activity," the agency said in its German insurance industry outlook.
"However, amongst the smaller and medium-sized insurers, M&A activities are more likely," it added.
Germany's insurance market is the fifth biggest in the world, accounting for about 6 percent of global premiums.
About half a dozen big insurance groups make up about half of the German market, with insurer Allianz (ALVG.DE) alone generating about one fifth of the country's insurance premiums.
In Germany, Allianz and other stock-exchange listed insurers like AMB Generali AMBG.DE (GASI.MI) and AXA (AXAF.PA) compete against non-listed, less profit-oriented players like Talanx and HUK Coburg in a battle that has kept premiums under pressure.
The big insurers have been improving productivity and cutting costs to boost profitability in face of stagnant growth in property/casualty and life insurance.
The 20 billion euro motor insurance segment in particular has weighed on property and casualty insurers, which have fought a vicious price war in recent years that shows little sign of abating.
"The important motor sector appears to again be heading towards a period of relative under-performance, in line with many non-life classes across Europe," Moody's said, noting that insurers as a whole made an underwriting loss last year.
The last time insurers saw underperforming motor business, losses were offset by high hidden reserves that assured insurers' solvency.
"Moody's expects that such cautious reserving may have come under pressure more recently, as price competition has intensified," the agency said, adding that profitability levels in the motor segment were likely to be under pressure for some time.
While German insurers have had low exposure to the structured fixed income investments that have prompted huge writedowns at some of the world's leading banks, it said insurers may still be indirectly hit by the effects of the subprime crisis.
"The general dispersion of weak investor confidence beyond purely sub-prime exposed investments, leading to a decline in market value of corporate bonds and higher-rated structured credit products along with reduced liquidity, and in market-value losses in equity markets, remain realistic threats to German insurers," it said. (Editing by David Cowell)
