Italian and UK non-life insurance market outlook negative, says Fitch

Fitch Ratings has said the sector outlooks for major European non-life insurance markets are mostly neutral for this year, despite recent challenging market conditions. But Italy and the UK are the exceptions, with motor claims being the main negative force. Fitch said that in most national European insurance markets, the positives, such as better pricing conditions for commercial business lines, are “broadly in balance” with the negatives, which include higher claims inflation and low investment yields. In Italy, however, the non-life sector outlook is deteriorating as Fitch expects increasing claims frequency, particularly for motor insurance. In the UK, the sector outlook for the non-life company market is also deteriorating. This is partly because of new pricing rules. The sector outlook for the London specialty insurance market is, however, improving. This reflects better pricing for commercial lines, which dominate the business, commented Fitch. “In Italy, driving activity and, consequently, motor insurance claims are particularly strongly correlated with economic activity. Motor claims frequency fell sharply during lockdown restrictions, when driving activity was well below normal levels, but we expect it to return to pre-pandemic levels in 2022 as the economic recovery continues,” said Fitch. “However, premium rates are unlikely to keep pace. We believe insurers are reluctant to push up premiums, given the competitive pricing environment and customer expectations of rebates following low claims during the pandemic. Underwriting profitability is likely to weaken accordingly, exacerbated by higher claims inflation,” it added. The contrasting sector outlooks for the UK non-life company market and the London insurance market reflect the different credit profiles of the two sectors, said the ratings agency. “For the UK non-life company market, the sector outlook is deteriorating, driven by our expectation that high claims inflation, an increase in claims frequency towards pre-pandemic levels and new pricing rules will reduce profitability. The Financial Conduct Authority’s ban on dual-pricing strategies, which came into force on 1 January 2022, will force insurers to overhaul their pricing and distribution strategies for motor and household insurance,” said Fitch. “The measures include a requirement for firms to offer existing customers renewal prices no higher than the equivalent new-business price, and steps to make it easier for customers to decline auto-renewals. We expect the new rules to lead to lower margins for insurers in 2022,” it added. “For the London insurance market, the sector outlook is improving, driven by our expectation of continued improvements in pricing conditions for commercial lines, which would support underlying underwriting profitability. Several insurers reported double-digit percentage price increases in 2021. We believe these were driven by the market’s concerns over inflation, elevated catastrophe activity and increasing losses from cyber insurance due to ransomware claims,” continued Fitch. Inflation is the biggest threat to non-life insurers’ profitability, according to the ratings agency. “Non-life insurers in all markets could be negatively affected if current high levels of inflation persist. Fitch’s base case is for high inflation to be shortlived, but if inflation significantly exceeds Fitch’s expectations over the next two years or more, insurers could face margin pressure in their short-tail business lines and reserve deficiencies in their long-tail lines,” it said.

Italian and UK non-life insurance market outlook negative, says Fitch

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