Italian property and casualty (P&C) insurers have been assigned a stable outlook by credit rating agency Moody’s, while Italian life insurers’ has been negative.
According to the report, the stable outlook for P&C reinsurers reflect the agency’s expectation that rising prices will largely offset higher claims frequencies and inflation
over 2023.
Meanwhile, the negative outlook for life insurers reflects lower sales of savings policies and increased lapse risk as rising interest rates make other investment products more attractive.
While the Italian economy grew strongly in 2022, Moody’s expects it to slow to 0.8% in 2023 from 3.8% in 2022. Analysts also expect the inflation rate in the country to moderate this year and in 2024.
The slowing economy, and relatively high unemployment with lower disposable incomes as a result of consumer price inflation, will likely hold back premium volumes, in particular for discretionary insurance and savings products.
The report also found that rising motor prices will support a stable underwriting performance for the P&C market in Italy as Moody’s also expects stable profitability in 2023.
“The Italian P&C market remains bifurcated. Non-motor lines delivered sound profitability on the back of close to 9% growth in premiums last year. In contrast, underwriting profitability in the key motor segment turned negative, reflecting claims inflation and stagnant premiums,” analysts added.
Moody’s also noted that Italy has among the highest natural catastrophe exposure in Europe, however, insurance coverage against perils like flood and hail storms is very low.
Insurance against natural hazards is non-mandatory and it is entirely dependent on the private sector, which makes it relatively costly. According to the report, only 5% of Italian houses are insured against natural catastrophes.
For Italian life insurers, even though rising interest rates lifted investment returns in 2022, they also held back sales of insurers’ savings policies. This happened as higher-yielding alternatives are also becoming increasingly available
At the same time, the report found that this has also increased the risk that life savings customers may surrender their policies, although insurers with high reliance on affiliated distribution have seen lower lapses.
Analysts do not expect a mass lapse scenario, but Italian life insurers will have to take action to maintain their role as consumers’ preferred provider of savings products, the report highlighted.
Finally, Moody’s expects that Italian insurers’ capital adequacy will remain largely stable, with average Solvency II ratios well in excess of 200% at year-end 2022, although it is subject to market volatility.
“Italian insurers remain highly exposed to Italian sovereign bonds and other investments with material credit risk. As a result, their Solvency II ratios are highly sensitive to negative market movements,” the rating agency concluded.
