Fitch: German Private Health Insurance Sector Outlook Stable

(businesspress24.com) - Health Reforms To Alter Business Model

Fitch Ratings-London/Frankfurt-03 April 2007: Fitch Ratings says in a special report issued today that the Outlook on the German private health insurance sector is Stable, reflecting the agency''s expectation that the number of rating downgrades and upgrades will be balanced over the next 12 months.
Growth rates in private full value health insurance have been declining since 2002, whereas supplementary insurance has recorded strong growth rates. The lower volume of premiums and the higher number of supplementary insurance policies make great demands on the IT infrastructure and processes of a private health insurer ("PHI") to handle them efficiently.
The capitalisation of PHIs continued to improve in 2005. This is mainly attributable to an increase in hidden reserves and an increase in the equity as retained earnings have grown. In 2005 PHIs posted a significant increase in their gross profits after tax, of which 92% has been allocated to policyholders. Although the sector''s 5.1% net interest for 2005 returns were significantly in excess of the statutory actuarial interest return of 3.5%, current interest returns have been in decline since 2001.
"Though continuation of this trend currently appears unlikely to reduce net interest returns below 4.0%, a reduction below this level could precipitate a reduction of the maximum actuarial interest rate for some companies. Overall however, German PHIs are currently more profitable than German life insurers," says Tim Ockenga, Director in Fitch''s European Insurance team.
The health sector reform will alter the business model of PHIs. Fitch anticipates that the amount of new business generated will continue to decline as a consequence of the new three-year waiting period before a policy can be enacted. The obligation to provide insurance cover for non-insured people who are assigned to the PHI sector will increase the future premiums of existing policyholders as some non-insured people are not able to raise their contributions on their own. The report points out that the impact of the basic tariff and the partial portability of the maturity provision, which will be brought into force on 1 Januray 2009, is difficult to predict.


"Fitch expects that the basic tariff will be used to generate new business and, as a result, can assume an important role. Whether the basic tariff will become the central focus of a new PHI landscape will depend on further reforms", says Axel Grosspietsch, Analyst in Fitch''s European Insurance team.

The full report, entitled "German Private Health Insurers - Much ado about Nothing?" is available on www.fitchratings.com

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Company: Fitch Ratings

contact information:
Contact person: Axel Grosspietsch
Town: London
Phone: 44 (0)20 7862 4034

Typ of Press Release: Financial
Date of sending: 03.04.2007
type of sending: send
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