French non-life market primed for hardening say insurers

This gloomy view of the market was reinforced by a report by credit rating agency Fitch which believes that insurers will not be able to avoid rising prices for long. But such a feat could prove very hard to achieve. France's long soft insurance market gives no sign of reverting in the short run, according to risk managers and brokers. In a report released in October, Fitch said that claims increases and poor financial results would encourage non-life insurers to raise premium prices, especially in property lines. Acquisition of new business does not look attractive enough to guarantee that their luck will change for the better. In the first six months of the year, property and casualty premiums increased by a mere 2% compared to the same period of 2009, Fitch noted, while indemnities have been on the way up because of a surge in natural catastrophes.hideThe rating agency claimed that the French non-life market is saturated and it is difficult to tap new clients in such a competitive environment. This pessimism is shared by plenty of insurers, some of which have been quoted by the media as saying that they will not be able to keep prices down in coming renewals. “Many non-life insurers will publish very bad results in 2010 and the situation should be similar next year,” said Jean-Luc de Boissieu, the secretary general of Groupement des entreprises mutuelles d’assurance, GEMA, France's association of mutual insurers. “The trends that we are seeing today should continue next year. In other words, technical results will keep on falling and the industry will have a rather bad exercise in terms of profitability,” he added. But the Association pour le Management des Risque e des Assurances de L'Entreprise, AMRAE, the French risk management association, is confident that, even though insurers might want to increase premium prices, they are not likely to do it in the short run. “The market remains very soft, with plenty of capacity and a lot of competition among insurers,” Brune Costes, who is in charge of AMRAE's Insurance Market Review, told Commercial Risk Europe. “Some insurers are saying that they will have to raise prices, but I'm not sure they can do it in this very competitive market,” he added. French insurance buyers have benefited from the entry of a number of new providers in the market, such as Torus, Amlin and Mitsui, which are helping to keep everybody on their toes. The economy is not on the side of suppliers either. France is doing better than other rich countries at the moment, but it is still growing slowly, which is unlikely to lead to a significant boost of demand. “The market is still competitive, although it addresses an increasingly limited number of large international corporations,” said Jean-Michel Gey, the technical director, reinsurance at Marsh in Paris. The prospects of a harder market in 2011 are therefore slim. In general, prices are expected to stay flat in January, and in some cases firms with a good risk profile might even be able to negotiate a discount, according to experts. “The balance sheets and results of insurers look worse than two years ago, but they are not at levels that justify a general hardening of the market,” said Mr Gey. Mr De Boissieu believes that some movement upwards should take place, but not to a significant degree. “I do not see a sharp increase of premiums in 2011,” he said. “They should go up by one, two or three percentage points next year, but this will not be sufficient to bring companies back to profitability.” There are exceptions though. Financial companies are finding it very difficult today to find competitive policies in areas like liability and D&O, as they experience the persistent aftershocks of the crisis. Their situation was made more difficult after AXA, a leader in this particular sector, withdrew from the market, the experts say. Prices are rising in motor insurance, because of an increase in liabilities covered by insurers in recent years. “But for the majority of clients their motor insurance budget is much lower than property damage, business interruption or even liabilities, so it is less of an issue,” Ms Costes pointed out. The market has also evolved positively in terms of smaller lines like political risks, which are gaining in importance as French companies increasingly look abroad to find growth that is scarce at home. “There is a slightly more attractive market for political risks today than some months ago,” Ms Costes said. “The insurers had anticipated that during the crisis they would have to pay many liabilities, which finally was not the case. In January we should have more capacity than in last July,” she added. A more immediate concern for insurers is a new tax that is planned by the French government on capital reserves held by insurers. The new 10% “exit tax”, if approved by Parliament, would amount to an extra €1.6bn tax bill for the industry in 2010, according to Mr De Brissieu. Although most of the money would be paid by life insurers, non-life firms would have to reach into their pockets for something between €400m and €500m. “This new tax will do great harm to all the French market,” Mr De Brissieu concluded. Look out for a fuller version of this story in the November hard copy issue of Commercial Risk Europe. The December issue of the newspaper will also carry an in-depth analysis of the French risk management and insurance market based on interviews with leading French risk managers as part of our annual Risk Frontiers survey. The full survey will be published and discussed in detail at the Malta International Risk & Insurance Congress in Valetta on November 25 and 26. To secure your free copy of the newspaper and to register for the Congress sign up here.

French non-life market primed for hardening say insurers

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