Forecast

Future macroeconomic situation

Global economic growth in 2008 is likely to be somewhat weaker than in the previous year. It would appear to be proving correct that the encroachment of the strains from the property crisis and credit crunch into the real economy – which had been feared in some quarters – will be limited and a severe dent in growth can be avoided. The emerging markets will probably retain their prominence against the backdrop of the relatively robust state of the large national economies and again comfortably surpass the growth of the G7 countries. Due to the unfavorable effects of the real estate crisis and credit crunch on manufacturing output, jobs and ultimately consumer behavior, the economic situation in the United States will probably continue to cool; US gross domestic product in 2008 is unlikely to grow by more than around 1 to 1.5% in real terms. The economic woes in the United States are also curtailing global economic growth. In the Eurozone economic growth in 2008/2009 is likely to fall below the 2% threshold. The sustained improvement in the state of the labor market in Europe as a whole and Germany in particular should help to stabilize the economic trend. With inflation easing and jobless figures falling, we therefore expect the German economy to remain on a solid growth course.

Interest rates on the bond market are, if anything, likely to trend upwards in the United States and Europe in 2008. On the equity market the positive fundamentals for European industrial stocks remain intact. The moderate valuation of European and especially Germany equities opens up price potential – subject to a cooling macroeconomic trend that does not, however, slip into recession.

Future state of the industry

The insurance industry is not only dependent on the overall economic development, it is also subject to a number of other internal and external influencing factors. Remarks about the future state of the industry should therefore not only be viewed in connection with the assessment of the economic trend, but also as contingent on other framework conditions and the flow of internal market currents. The competitive behavior of providers also plays a major role in the market tendencies, but of course so do the needs of customers as well as their purchasing power and buying patterns. Insurance markets around the world present a very heterogeneous picture; for Talanx, the German insurance market is the most important single market in the primary insurance segments.

In the years ahead, too, the German life insurance market will profit from the need for individual retirement provision among other population groups, although the anticipated premium growth is likely to be rather moderate with a gain of barely 2% due to fierce competition and the limited capacity of prospective customers to take out provision. The volume of new business that can be generated from the available potential will crucially depend on the extent to which the industry is successful in asserting itself against the growing competition from other financial services providers – first and foremost banks and retail funds – and persuading customers of the specific advantages offered by their products. Above all, we have in mind here the broad variety of offerings that can be optimally harmonized with individual provision requirements. Further factors are the broadly favorable business environment for the various means of implementing occupational retirement provision, the introduction of the flat-rate tax on investments (Abgeltungssteuer) and the availability of state-subsidized products such as the so-called Riester annuity.

With premium income in the German property and casualty insurance market on the decline since 2005, it is to be hoped that the stimuli coming out of the largely positive economic climate might help to prevent further premium contraction in 2008 and 2009. Yet it remains to be seen whether the economic thrust needed for this purpose is sufficiently strong that it will be reflected in rising demand for insurance protection. What is more, the indicators – especially in motor insurance, by far the most significant line of property/casualty insurance – do not suggest a fundamental turning away from fiercely competitive behavior. In industrial property and liability insurance, too, sustained cutthroat competition with further selective premium erosion must be anticipated. This forecast is also supported by the relatively favorable claims situation in recent years and the entry of new players into the market. Moderate premium growth can, however, be expected in some lines of private customer business.

On the international level we consider the climate for life insurance and life/health reinsurance to be positive. Growth in this area derives primarily from the rising demand for individual old-age provision. This trend, which goes hand-in-hand not only with increasing affluence but also with the limited ability of state systems of provision to pay benefits, can be observed in already highly developed industrial nations and in emerging markets alike; it is being fostered by the demographic trend towards generally higher life expectancy. In view of their relatively modest market size, the emerging countries will not normally be able to keep pace with the industrial nations in the foreseeable future, but given the considerable pace of their economic expansion and their vast population potential they offer healthy growth prospects. In international non-life (re)insurance we expect the softening of the insurance cycle to continue, which is likely to be reflected principally in a tendency towards declining rates. What is more, going forward we expect the burden of losses from natural disasters and man-made events to trend upwards. Our assessment of the outlook for insurance sales through banks is similarly upbeat. In the international arena this concept offers good opportunities for marketing expansion as well as possible starting points for leveraging synergies in the interplay of banking and insurance business. In the medium term, another area offering scope for the development of innovative products and service solutions is likely to be the extensive field of long-term care benefits and assistance services.