AM Best is maintaining a Negative outlook for the French non-life insurance segment due to stagnant top line growth, increasing inflation and interest rates impacting profitability, and higher costs and volatility associated with natural catastrophes.
The French non-life insurance segment is facing a challenging environment with stagnant or contracting premium levels on a real basis due to the new inflationary conditions, resulting in increased competition among insurers to defend their profiles, economies of scale, and margins.
Despite historically resilient premium growth rates, the current forecast indicates that real premium growth is expected to lag behind the wider economy in 2023.
In addition to competitive pressures, legislative constraints and voluntary anti-inflation measures announced by the French government will further limit premium increases for insurers in the coming year.
“The French non- life segment is competitive and the effect of higher losses and expenses is unlikely to be offset by comparable premium increases.”
The French non-life insurance segment is facing significant profitability challenges due to rising inflation, resulting in increased claims costs and higher expenses, particularly in the motor business. The impact of inflation is expected to continue in 2023, with claims costs and wage bills putting pressure on the segment’s technical performance.
Despite the competitive nature of the market, insurers are unlikely to offset these higher costs through substantial premium increases, and instead, premium adjustments are expected to be gradual over several years to account for the effects of inflation.
The French non-life insurance segment is experiencing increased volatility and higher costs due to natural catastrophes, including drought, hailstorms, and fires. These events have resulted in significant losses and consistent technical losses for natural catastrophe insurance.
While the market benefits from a guarantee from the French state through Caisse Central de Reassurance (CCR), not all events are covered, placing the burden on the private sector.
The rising cost of reinsuring these events, coupled with a competitive market, makes it challenging for insurers to pass on the costs to policyholders through premium increases, negatively impacting the segment’s profitability in the short term.
The French non-life insurance segment benefits from a diverse and balanced market composition, with motor insurance representing only a quarter of premiums, which helps stabilize top-line results.
The segment also emphasises innovation and digital capabilities, making investments in insurtech and technology companies to improve competitiveness and earnings.
However, despite these positive factors, AM Best maintains a Negative outlook due to the challenges posed by rising inflation and higher costs associated with natural catastrophes, although the outlook could change if inflationary pressures ease and the market proactively adjusts pricing to mitigate profitability impacts.
