According to a recent analysis by Morningstar DBRS, the Italian insurance sector has mostly overcome the challenges of the difficult operating environment it faced in 2023, and the current outlook is improving.
Recently published data has shown that Italian insurers managed to report an improvement in profitability compared with the prior year, and further strengthened their already-solid Solvency II ratios.
It’s also worth highlighting, that in 2023, life insurance premiums suffered as a result of the macroeconomic environment and higher interest rates, which ultimately increased the demand for alternative investments, as they became more remunerative for investors.
As well as this, uncertainties due to the difficult geopolitical environment and the higher cost of living led Italian retail investors to prefer investment products with a minimum capital guarantee, analysts noted.
Lapse risk across the Italian life insurance market also remained elevated. At the end of 2023, withdrawals and surrenders amounted to EUR 85.1 billion, representing an increase of EUR 31.6 billion from the previous year.
Notably, the ratio of surrenders on technical reserves reached 10.9% in 2023 (6.7% in 2022), the highest ratio seen since 2011–12.
Focusing attention now on the non-life sector, adverse weather events across Italy in 2023 led to a deterioration in the non-life sector’s overall underwriting profitability for the year. The combined ratio, net of reinsurance, was 96.8% in 2023, higher than 94% in 2022 and 94.1% in 2021.
However, analysts pointed out that this still compares favourably against the combined ratios of 100.1% in Germany, 99.2% in France, and 99.7% in the Netherlands.
“We expect Italian insurance companies to report improving underwriting profitability in 2024, mostly on the back of still-sustained premiums growth; however, we will continue to monitor insurers’ exposure to nat-cat risk, which we expect to grow as a result of the government-driven mandatory insurance protection,” commented Morningstar DBRS.
Regardless of the drop seen in premiums across the life sector, combined with the deteriorated underwriting result in the non-life sector, Italian insurance firms improved their bottom-line profitability in 2023, mostly benefitting from higher investment income.
Data reported in the Italian insurance overview 2023/2024, published by Association of Insurance Companies (ANIA) shows that total average return on equity (ROE) was 11.6% in 2023 compared with 3.3% in 2022, while life insurance companies reported an ROE of 14.1% compared with -1% the year before, while non-life insurance companies’ ROE was 8.3% compared with 8.8% from the year before.
Morningstar DBRS explains that in their view, the outlook in 2024 is improving for both life and non-life insurers, which is supported by sustained premiums growth in the life sector, as well as the continuous growth in the non-life business’ motor and non-motor segments.
“We will continue to monitor Italian insurance companies’ exposure to natural catastrophe (nat-cat) risk, especially in light of the recently approved mandatory insurance coverage against catastrophic events for Italian incorporated businesses,” Morningstar DBRS concludes.
