A recent report from Fitch Ratings says that the firm expects continued life insurance consolidation activity due to a steady transaction pipeline, insurers’ appetite to deploy capital into acquisitions, and the increasing use of innovative deal structures. Greg Winterton caught up with Dr. Christoph Schmitt, Director, Insurance at Fitch Ratings to take a closer look at the German life insurance consolidation market specifically.
GW: Christoph, let’s start with this year. Fitch said in a report it published last December that the German market could see up to €25bn in life liabilities transacted in 2026. As we approach the halfway point of the year, how are volumes progressing? Is the €25bn figure still in the ballpark, or is it just too early to tell still?
CS: It’s still too early to say for sure. At the end of 2025, Zurich announced its intention to sell its closed book, Zurich Life Legacy, which we estimate to have had total assets of €18bn at the end of 2025. But in April, Zurich said that it had not made a final decision about selling the portfolio. The market environment has changed in recent months, and they might expect improved transaction conditions. Our forecast includes this closed book, and if it would not come to market, we would reduce our estimate to about €8bn.
GW: Conventional wisdom suggests that rising interest rates make legacy books easier for primary insurers to hold. Yet, Fitch predicts consolidation will accelerate in 2026. Why aren’t primary insurers choosing to keep these now-profitable books, and what is driving the urgency to offload them specifically in this higher-rate environment?
CS: A few things drive activity in the space. First, rising administrative costs, including IT migration and systems modernisation, are becoming harder to absorb against a declining number of in-force policies. These costs are high, and disposals of older blocks can also allow life insurers to sharpen their focus on new business and improve capital efficiency.
Higher interest rates actually support activity in the market. Because rates have risen, these blocks are attractive enough for a buyer, so while yes, a primary insurer can take profits from these blocks slowly over 20 years, they want to sell it to a consolidator today for a lump sum. Also, interest rates might fall at some point, so locking in the sale today makes sense.
Also, under Solvency II, these legacy portfolios remain capital-intensive despite their improved profitability. By offloading them now, primary insurers can lock in a valuation uplift and redeploy that ‘trapped capital’ into higher-growth, fee-based products that the equity markets value more highly.
Essentially, the opportunity to de-risk the balance sheet and simplify the corporate profile currently outweighs the tactical benefit of extracting profits in the long-term.
GW: We’ve seen some high-profile deals face headwinds from BaFin regarding ‘owner control’ and policyholder protection. From Fitch’s perspective, has the regulatory roadmap for German run-offs finally stabilized, or should investors still be wary of ‘execution risk’ where a deal is agreed upon but fails to receive the green light?
CS: The regulator isn’t anti-consolidation; they are pro-transparency. The ‘execution risk’ you refer to is a temporary bottleneck caused by specific ownership issues, not a structural flaw in the German run-off model. And the recent announcement by EIOPA that looks set to ensure regulators ask certain questions and analyse certain structural parts of the deal is actually going to help – it means that any future transaction is less likely to get cancelled towards the end of the process.
BaFin may be moving beyond solvency ratios to conduct a much deeper look-through assessments of the ultimate shareholders then formerly which aligns with what EIOPA is looking to regulators to do. This focus on the long-term commitment of private equity backers ensures that the operational continuity of the platform is ring-fenced from the volatility of the parent company.
This process may lengthen the initial approval timeline, but it provides a more robust, standardised framework that reduces the tail-risk of a late-stage veto.
GW: There are a couple of firms – Viridium and Frankfurter Leben come to mind – that dominate the domestic landscape. Do you expect the German market to remain a ‘duopoly’ of sorts, or is there room for a third or maybe even a fourth major platform to participate?
CS: It’s not a duopoly but there is likely limited opportunity for others to enter in any meaningful way. To be competitive in the German life insurance consolidator market, you need almost industrial-like scale – maybe €10bn–€20bn in assets – just to cover the very high fixed costs of administration, regulatory compliance and IT. Within pension fund consolidation (“Pensionskassen”), smaller operating scale may be sufficient, albeit transaction volumes are often below €1bn and rarely exceed €5bn, making this business less attractive for international investors.
The market has moved into a state of operational maturity where incumbents benefit from significant sunk cost advantages. These established platforms have already invested heavily into proprietary IT migration tools and legal frameworks that are uniquely constructed for the German life sector. For a newcomer, the cost to participate is not only the acquisition price of a portfolio, but the capital expenditure required to build a compliant, scalable administrative engine from scratch.
Starting from zero with small acquisitions is almost impossible today. They wouldn’t be able to compete on price or service.
GW: Lastly, Christoph, we are seeing a shift in how these firms manage the asset side of the balance sheet, often moving toward higher-yielding, less-liquid private assets. Do you see this investment pivot as a permanent structural change in the German market, and how does Fitch view the resulting trade-off between higher returns and increased liquidity risk?
CS: We certainly see a maturing trend where acquirers seek to increase returns by redeploying assets into higher-yielding, longer-duration, and often less-liquid investments to match their long-dated liability profiles. If a German policy is in the annuity pay-out phase, the contract can no longer be lapsed. This reduces liquidity risk for consolidators giving them some flexibility for a higher share in illiquid assets. Also, the theme is particularly evident in the US, but it is gaining traction in Europe as firms look for ‘investment alpha’ to offset the high costs of managing legacy guarantees.
While the long-term nature of life insurance liabilities naturally moderates liquidity risk to a certain degree, this shift does introduce new complexities into our credit analysis; we are closely monitoring the credit quality of the private credit investments and how these platforms balance the search for yield with the need for robust risk management.
As consolidators move further into private credit, infrastructure, and other alternative asset classes, the potential for concentration risk and valuation complexity increases. And we also have to consider the potential for conflicts of interest if investment decisions are perceived to prioritise affiliated fund performance over policyholder interests where applicable.
We’re looking more at who has the most sophisticated internal governance to manage these increasingly complex, asset-intensive balance sheets without compromising their solvency cushions.
Dr. Christoph Schmitt is Director, Insurance at Fitch Ratings in Frankfurt
