Global credit ratings agency AM Best has confirmed that it is maintaining its negative outlook on France’s non-life insurance segment, citing a number of factors, such as: modest real top-line growth on an inflation-adjusted basis, inflation impact on profitability in light of strong competition, and volatility sustained by the upsurge in social unrest and climate-related hazards.
The agency explained that while it expects overall non-life premium income in France to see growth in 2024, it is likely to be modest once adjusted for inflation.
Top-line growth for France’s nonlife segment has historically been closely correlated to gross domestic product (GDP) growth, Best noted.
In addition, the French central bank, Banque de France is reportedly forecasting real GDP growth of only 0.8% for 2024, which clearly reflects the delayed effect of the uptick in inflation and interest rates on the economy, as well as its negative impact on households’ disposable income. As a result, this suggests relatively modest growth prospects for France’s non-life insurers, the agency explained.
Best anticipates that inflationary pressures will continue to pose challenges for non-life insurers throughout 2024 by pushing up claims costs.
However, further rate increases are likely be seen in 2024 as insurers aim to offset the effects of the claims inflation seen over the last couple of years.
It is important to highlight, that increases in the price of spare parts, as well as increase in bodily injury costs, have also contributed to claims inflation in lines such as motor.
“Insurers are expected to adjust their premium rates going forward to counterbalance the inflation-linked deterioration in technical results,” said Best.
Moving forward, the agency is also expecting investment returns to be a significant contributor to profitability in 2024,
driven primarily by higher yields on insurer’s fixed income portfolios.
The agency also noted that the increase in frequency and severity of natural catastrophe events related to changing climate trends is also expected to put pressure on the technical performance of France’s non-life insurers, despite the state-backed natural catastrophe scheme, through reinsurer Caisse Centrale de Réassurance (CCR).
Overall, according to Best, modest growth prospects, claims inflation and higher volatility from natural catastrophe and man-made events are all expected to remain as major challenges for France’s non-life segment over the next year.
However, the segment’s profitability is expected to remain constrained due to high competitive pressures.
But, it is important to remember, that AM Best could revise the outlook if inflationary claims pressures decline and premium levels continue to grow, supported by economic recovery.
