Italian insurance market growth to be subdued, says Fitch

The growth and profitability of Italian insurers will remain subdued, possibly until the end of 2013, according to a report by Fitch Ratings.

The ratings agency said as a result this would negatively affect insurers’ operating performance despite better underwriting profitability.

Fitch has subsequently maintained a ratings outlook of negative on the Italian insurance sector.

“The eurozone crisis continues to represent the greatest challenge facing Italian insurers,” said Federico Faccio, senior director in Fitch’s insurance team. “This, together with a challenging transition to Solvency II for the Italian insurance market, is likely to keep ratings under negative pressure in the next 12-24 months.”

Last year’s results have shown a general decline of insurers’ capital adequacy and life operating profitability due to the impact of the eurozone crisis on the Italian bond market and equity markets. However, better technical results also indicate that life insurers have taken some effective actions on product guarantees and pricing, said Fitch.

Non-life underwriting margins have meanwhile benefited from portfolio and price adjustments over the past few years. However, the ratings agency said that growth was likely to remain subdued as households reduce cover, new car sales languish and competition remains tough in commercial lines.

Mark-to-market of assets under Solvency II could also make Italian insurers’ solvency capital volatile due to its dependence on market values of government bonds, which is not offset by a corresponding change in the value of the liabilities. Other issues relevant to the Italian insurance market were the final calibrations of non-life charges as well as the calculation of the counter-cyclical premium.