Markets and business climate

The premium growth generated by the German insurance industry amounted to 0.8% in 2008, an insignificant improvement on the pace of growth in the previous year. While German property and casualty insurance returned to marginally positive growth for the first time after years of declining premium income, German life insurance suffered under a lack of macroeconomic stimuli and appreciably muted overall demand in the 2008 financial year.

Development of premium income in the individual insurance lines in Germany

The major trends on the German life insurance market in 2008 can be summarized as follows:

• minimal growth in written premiums
• contracting portfolio by number of policies and regular premium
• declining new business by number of policies
• rising new business by regular premiums and single premiums

Particularly in the second half of the year, the intensification of the banking and financial market crisis as well as the looming recession proved to have a significant restraining effect on new business^*, which in the fourth quarter of 2008 fell appreciably short of the comparable quarter of the previous year both in terms of regular premiums and single-premium business. New business nevertheless increased in 2008 by 4.9% to EUR 19.2 billion, with growth in regular premiums assisted by the fourth and last step increase on the incentive scale for Riester policies. All in all, gross written premiums in German life insurance^* climbed by 0.9% in 2008 to EUR 76.1 billion. Excluding the special Riester effect accounting for an estimated premium volume of roughly EUR 1 billion, a modest premium decline would have been booked in 2008. The net return generated by German life insurers contracted owing to developments on capital markets. Given an average guaranteed interest rate of 3.4% in the in-force portfolio, the pressure on unadjusted earnings therefore increased.

Despite the curtailing influencing factors due to the muted state of private households and the similarly unfavorable economic climate for industrial business, the premium trend in German property and casualty insurance recovered somewhat compared to previous years. Against a backdrop of sometimes sharply diverging growth rates in the individual insurance lines, the latest projections of the German Insurance Association (GDV) indicate minimal premium growth for the segment as a whole of 0.2% to reach EUR 54.6 billion. The proportion of the total insurance market attributable to property and casualty insurance therefore remained unchanged at 34%. The potential for growth was, however, limited due to the relatively high degree of market saturation and the prevailing price competition in major lines such as motor and industrial property insurance, which had been further fueled by the moderate claims experience of recent years. On the other hand, the repercussions of the financial market crisis on property and casualty insurance also remained within limits. The profits generated by property and casualty insurers from their core insurance business proved to be generally robust, as a result of which it was possible to absorb relatively comfortably the write-downs and value adjustments that had to be taken on investments as a consequence of the financial market crisis.

* excluding providers of occupational retirement provision in the form of Pensionskassen and Pensionsfonds