Fitch improves outlook on French market to neutral

Fitch has revised its outlook on the French non-life insurance sector to neutral from deteriorating because it believes “strong” pricing and underwriting actions will mitigate claims inflation to support margins.

Higher-for-longer reinvestment yields will also help next year’s earnings, it added.

The better outlook comes despite Fitch recognising that strong pricing momentum in commercial lines has started to weaken.

Fitch added that the French non-life sector’s ability to maintain pricing above loss trends, while managing volatility through prudent reserving and effective reinsurance protection, is likely to “remain challenged amid persistent”.

But it expects non-life price increases to be higher next year than 2023 and “slightly outpace” claims inflation.

“We expect non-life claims to rise at slower rate, driven by easing inflation pressures (2023: CPI: 4.3%, Fitch 2024 forecast: 2.3%) and a continued normalisation of supply-chain conditions,” it said.

The ratings agency said French non-life nat cat claims are on track to be less severe this year than last, but noted that climate change will lead to more severe and frequent losses.

“Higher retention and rising reinsurance prices, notably for non-peak perils, have led to changes to climate-sensitive loss exposure. We expect insurers to take further remedial actions on specific natural or man-made catastrophe risk exposure that revealed vulnerability, such as subsidence, strikes and civil unrest,” it said.

“We expect the strong management actions taken over the past 18 months to earn through in 2024. Actions related to pricing, pruning, procurement, reserving and expenses have made P&C portfolios more resilient and better positioned to withstand the weak economic prospects and pocket of risks in the sector. We therefore forecast marginally improving combined ratios, driven by improving attritional loss ratios, partially offset by higher natural catastrophe ratios,” it continued.

“Flexibility in prior-year reserves releases or prudence in current-year reserving will help mitigate volatility in underwriting performance,” added Fitch.