AM Best has turned negative its outlook on France’s life and non-life insurance segments.
The ratings agency said that both were facing challenges, naming uncertain economic conditions, increased volatility, geopolitical tensions, and inflation in relation to the non-life sector, and low-interest rates and economic headwinds in relation to its life counterpart. The findings have just been published in the firm’s Best’s Market Segment Report.
These factors, said AM Best, are likely to exert pressure on profitability for both over the top year. However, it also said that insurers should be able to withstand these challenges and intimated that the ratings could revised to ‘stable’.
AM Best wrote: “Premium growth in the French non-life insurance segment has historically been closely correlated with the state of the economy. The International Monetary Fund (IMF) forecasts an increase in gross domestic product (GDP) of 3.5% for 2022, which should lead to a similar increase in insurers’ premium volumes. However, the country’s growth remains subject to significant uncertainty.”
It added: “In particular, the threat of further inflation and additional supply chain disruptions following Russia’s invasion of Ukraine and the international sanctions imposed on Russia could undermine the economic recovery and so reduce growth prospects for insurers. The potential emergence of new COVID-19 variants is also a source of uncertainty.”
On the life side, AM Best wrote: “While the life insurance segment recovered in 2021, benefiting from its good and entrenched position in the market, the previous year’s drop in premium demonstrates the vulnerability of its top line to deteriorations in economic conditions and consumer sentiment.”
It added: “Although the French economy is expected to expand in 2022, gross domestic product (GDP) forecasts have recently been revised down by the International Monetary Fund (IMF). Current geopolitical tensions, including the conflict in Ukraine and international sanctions imposed on Russia, are having a negative impact on economic prospects in France as well as other countries.”
It went on: “Equity markets are likely to remain volatile, and supply chain disruptions as well as rises in energy prices, could continue to drive inflation rates up. AM Best believes that deteriorating economic conditions could lead to another drop in life insurance premiums in 2022, especially if consumers once again favour more liquid investments.”
