Italian property and casualty (P&C) insurers have been given a stable outlook by credit rating agency Moody’s, while Italian life insurers have a negative outlook.
According to the report, the strong outlook for P&C reinsurers reflects the agency’s expectation that rising rates will largely offset higher claim frequencies and inflation.
over 2023.
Meanwhile, the negative outlook for life insurers reflects lower sales of savings policies and increased risk of default as rising interest rates make other investment products more attractive.
While the Italian economy will grow strongly in 2022, Moody’s expects it to slow to 0.8% in 2023 from 3.8% in 2022. Analysts also expect the country’s inflation rate to slow this year and in 2024.
A sluggish economy, and relatively high unemployment with lower disposable income due to consumer price inflation, will likely restrain premium volumes, especially for discretionary insurance and savings products.
The report also found that the rise in motor prices will support a strong underwriting performance for the Italian P&C market as Moody’s also expects strong earnings in 2023.
“The P&C market in Italy remains bifurcated. The non-motor lines provided good profitability on the back of almost 9% growth in premiums last year. In contrast, the underwriting profitability of the key motor segment has become negative, indicating the acquisition of inflation and stagnant premiums,” added the analysts.
Moody’s also noted that Italy has one of the highest exposures to natural disasters in Europe, however, insurance coverage against disasters such as floods and hailstorms is very low.
Insurance against natural hazards is not mandatory and it is completely dependent on the private sector, which makes it relatively expensive. According to the report, only 5% of Italian homes are insured against natural disasters.
For Italian life insurers, although the rise in interest rates has increased investment returns in 2022, they have also restricted the sale of insurers’ savings policies. This happened because alternatives with higher yields also became available
At the same time, the report found that it also increases the risk that life savings customers may surrender their policies, although insurers with a high reliance on co-distribution saw less lapses.
Analysts do not expect a mass lapse scenario, but Italian life insurers must act to maintain their role as consumers’ choice of savings products, the report emphasizes.
Finally, Moody’s expects that the capital of Italian insurers will remain strong, with average Solvency II ratios of over 200% by the end of 2022, although this is subject to market volatility. .
“Italian insurers remain highly exposed to Italian sovereigns and other investments with material credit risk. As a result, their Solvency II ratios are very sensitive to negative market movements, ” concluded the rating agency.
