According to Fitch Ratings, rising claims and reinsurance costs due to persistent high inflation and climate change will erode underwriting margins in the French non-life insurance sector, most particularly within retail P&C where pricing dynamics are less favourable than in commercial P&C.
Both government intervention and legislative changes also remain major risks within the health and protection segment too.
Fitch’s “deteriorating” outlook for the French non-life sector reflects the firms expectation that credit fundamentals will begin to worsen over the next 12 months.
In late 2022, the rating agency warned that credit fundamentals will begin to worsen in 2023, citing that lower earnings for the segment will be driven by lower technical profitability.
Meanwhile, Fitch’s “neutral” outlook for the French life insurance sector reflects the rating agency’s view that the fundamentals will be resilient in 2023.
Fitch highlighted how rising rates will be supportive of technical margins on general accounts reserves, but warned that this will not lead to a “meaningful improvement” in profitability for several years.
Further, Fitch noted that most of its rated French insurance groups remain to have Stable Outlooks.
However, the rating agency added that it expects their ratings to be resilient to a moderate deterioration in market and macro conditions, due to their strong capital strength and business diversification.
Lastly, Fitch stated that ratings headroom on some credits may still not be sufficient to absorb a severe downside scenario.
