BEST’S COUNTRY RISK REPORT

Germany
CRT-1 Economic Risk Political Risk Financial System Risk
August 22, 2019
Region: Europe Country Risk Tier 1 (CRT-1) Very Low Level of Country Risk

Country Risk Criteria Procedures Country Risk Tier 2 (CRT-2) Low Level of Country Risk
Guide to Best’s Country Risk Tiers Country Risk Tier 3 (CRT-3) Moderate Level of Country Risk
• The Country Risk Tier (CRT) reflects AM Best’s
Country Risk Tier 4 (CRT-4) High Level of Country Risk
assessment of three categories of risk: Economic,
Political, and Financial System Risk. Country Risk Tier 5 (CRT-5) Very High Level of Country Risk

• Germany is a CRT-1 country, with very low levels of

economic, political, and financial system risk. As the
world’s fourth largest economy and a member of the Regional Summary: Western Europe
eurozone, Germany is heavily relied upon to support
growth throughout the region. • Composed of 28 countries, the EU accounts for slightly
over a fifth of the world’s GDP. The IMF predicts that GDP
• Both GDP growth and inflation are projected to decline
for the region will be 18.71 trillion euros in 2019, largely flat
from 2018 to 2019. GDP is projected to be 0.8% in 2019,
from 18.75 trillion euros in 2018.
down from 1.5%, while inflation is projected at 1.3%, down
from 1.9%. The German economy is the largest economy • Uncertainty about Britain’s exit from the EU lingers,
in the region and is driven by services (69% of GDP) and a weighing on regional growth prospects. A decision on
strong manufacturing sector (23%). Brexit is due in October, with a “no deal” Brexit remaining
a possibility.
• AM Best categorizes the majority of countries pictured as
CRT-1 and CRT-2. Notable exceptions are the Eastern • Growth in Western Europe has stagnated; impediments
European countries such as Belarus, Ukraine, and include weakness in the region’s manufacturing sectors,
Romania. heightened trade tensions, and a general worldwide
economic slowdown.
Vital Statistics 2018
• The European Central Bank (ECB) ended its
Nominal GDP USD bn 4000.39
unprecedented quantitative easing program in December
Population mil 82.9
GDP Per Capita USD 48,264
2018. However, the ECB has signaled that further stimulus
Real GDP Growth % 1.5
could be forthcoming if economic softness persists.
Inflation Rate % 1.9
United Nations Estimates
Literacy Rate % n.a. Finland
Urbanization % 77.3 Sweden
Iceland
Dependency Ratio % 52.8 Finland
Life Expectancy Years 81.2 Norway Sweden
Median Age Years 45.9
Insurance Statistics Norway
Estonia

Federal Financial Supervisory Russia

Insurance Regulator Isle of Man Latvia
Authority (BaFin) Denmark
Lithuania
Estonia

Premiums Written (Life) USD mil 92,297 Netherlands Latvia

Isle of Man
Ireland Belarus
Premiums Written (Non-Life) USD mil 134,877 United
Denmark
Lithuania
Kingdom
Premiums Growth % 5.7 Germany Poland
Netherlands
Belgium
Ireland Belarus
Regional Comparison Guernsey Liechtenstein
Czech
UnitedRepublic
Ukraine
Kingdom SlovakiaGermany
Country Risk Tier Jersey Luxembourg Poland
AustriaBelgium Republic of
Hungary Czech Moldova
Germany CRT-1 France
Switzerland
Guernsey Slovenia Liechtenstein Republic
Romania
Croatia
Luxembourg Slovakia
France CRT-1 Andorra
Jersey San Marino
Bosnia & Serbia
Herzegovina Austria
Hungary
Italy CRT-2 Italy FranceMontenegro
Switzerland
BulgariaSlovenia Romania
Croatia Georgia
Spain CRT-2 Monaco Andorra
Macedonia
Albania
San Marino Bosnia & Serbia
Armenia
Spain
Herzegovina

Switzerland CRT-1 Portugal

GreeceItaly Turkey
Montenegro Bulgaria
United Kingdom CRT-1 Gibraltar
Macedonia
Monaco Albania
Spain
Source: IMF, UN, Swiss Re, Axco and AM Best Portugal
Malta Cyprus Syria
Greece
Azores Lebanon
Gibraltar Tunisia Israel
Morocco
Copyright © 2019 A.M. Best Company, Inc. and/or its affiliates. All rights reserved. No part of this report or document may be reproduced,
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Germany
BEST’S COUNTRY RISK REPORT

Economic Growth (%) Economic Risk: Very Low

6
Real GDP CPI Inflation
• Germany is the leading exporter of machinery, chemicals,
and vehicles. The country’s diversified and competitive
4
economy is the largest in Europe.
2 • As one of the world’s leading manufacturers, the German
economy is highly sensitive to global trade tensions.
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Two of Germany’s biggest trade partners are the US and
China, both of which have uncertain outlooks amid trade
-2
tensions. Germany is also affected by volatile commodity
-4
prices, as commodities constitute a large input in
manufacturing.
-6 • Population growth in Germany was 0.4% in 2017,
according to the World Bank, almost all of it in west
-8
Germany. Demographic trends in east Germany pose a
Source: IMF World Economic Outlook and AM Best challenge to long-term economic stability.
• The German government plans to increase public spending,
with USD 170 billion directed to infrastructure, education,
technology, and housing over the next four years.
Political Risk Summary • Unemployment is at historic lows, roughly 3.4% in 2019.
Score 1 (best) to 5 (worst) Despite the tight labor market, wage growth has lagged.

Political Risk: Very Low

World Average International Transactions
Policy
Germany
5
Legal System 4 Monetary Policy • The current chancellor of Germany is Angela Merkel, from
3 the Christian Democratic Union (CDU). The CDU and
the Christian Social Union (CSU) make up the primary
2
support for Merkel. The majority coalition government is
Regional Stability 1 Fiscal Policy comprised of these two parties and the Social Democratic
0 Party (SDP). Under this coalition, which is set to last until
the next federal elections in 2021, policy continuity is
expected. Merkel has indicated that she will step down as
Social Stability Business Environment chancellor in 2021.
• Germany is strongly in favor of the EU and one of the original
11 countries to adopt the euro as its currency in 1999.
Government Stability Labor Flexibility

• Thanks to its large economy and strong institutions,

Source: AM Best
the country retains considerable influence both in the
international community and in the European Union.
• The country supported the sanctions on Russia. Given
GDP Per Capita and Population the tensions with Russia, Germany plans to increase its
90,000 90
armed forces from 166,500 soldiers to 200,000 by 2024.
GDP Per Capita Population
Additionally, Germany plans to increase defense spending
80,000 80 to 2.0% of the country’s GDP by 2024, as agreed upon by
all NATO members.
70,000 70

60,000 60 Financial System Risk: Very Low

50,000 50 • The German insurance sector is regulated by the
Millions
USD

40,000 40
Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Supervision of the industry dates back to the turn of the
30,000 30 20th century.
20,000 20 • Germany’s banks are well capitalized, but rising
competition and a prolonged low interest rate environment
10,000 10
have resulted in weak profitability.
0 0
Germany France Italy Spain Switzerland United • Germany’s life insurance sector has also been subject to
Kingdom
low profitability, owing to the persistently low interest rate
Source: IMF and AM Best environment.

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