Rating environment mixed in challenged Italian market says AM Best

In its Italian Non-Life Insurance Sector Faces Shifting Landscape report AM Best said that insurers are focusing on achieving technical profitability after some challenging years and an increasingly volatile investment environment. The rating environment is on the up in 2012 and the market is expected to show an overall underwriting profit in 2013, explained the rating agency. The Italian non-life insurance market returned to growth in 2011 when premium income rose 2.1% to €36.4bn, according to data from insurance trade association the Associazione Nazionale fra le Imprese Assicuratrici (ANIA).hideThis result was driven by motor rate rises. The motor segment accounted for 57% of non-life premiums in 2011, with premiums for motor third part liability (MTPL) and motor physical damage increasing by 4.1%. Insurers began implementing tariff increases on MTPL insurance from the second half of 2010 to rebalance technical accounts on what has been an unprofitable line of business in recent years, said AM Best. Rates have lifted by as much as 30%, and insurers have been attempting to increase prices in 2012, although to a lesser extent than in previous years. Increased pricing for motor risks has contributed to an improvement in combined ratios for MTPL, although the line of business remains unprofitable from a technical perspective. The combined ratio improved from 106% in 2010 to 103% in 2011, having been as high as 108% in 2009. Other non-life risks, including medical malpractice, which has suffered from poor technical performance, have also been subject to major rate increases in Italy, but there has not been a hardening across the whole of the non-life market, the report states. Gross premiums written (GPW) for general liability fell in 2011 and the business remained unprofitable, with a combined ratio of 122%. Property rates were broadly flat in 2011, although these are expected to increase for commercial property covers after the earthquake activity and aftershocks in the Emilia-Romagna region of Italy in May 2012, which significantly damaged manufacturing facilities and consumer goods inventories. Catastrophe modelling firm EQECAT has estimated insured losses could reach €700 million. Market participants expect catastrophe-exposed risks to see rate rises of up to 20%, with changes being made to reinsurance renewal programmes. The Italian non-life market faces a number of challenges with recent legislative changes, the impact of the eurozone crisis and a planned merger of four of the country's top insurers dominating the horizon. Italy's economy returned to modest growth in 2010 and 2011, although uncertainties over Italy's sovereign debt remain. In light of the eurozone crisis Italy's gross domestic product is expected to decline by 1.9% in 2012 and the country's unemployment rate will increase to 9.5%. Insurance fraud is a major concern as the economic difficulties persist. "The insurance sector was exposed to high levels of suspected fraud and claims even before Italy's economic downturn, and these continue to impact loss ratios. However, the recently passed law Cresci Italia (Grow Italy) aims to help reduce fraud, as well as increase transparency and competition in the insurance industry," said Arianna Brina, Associate Financial Analyst at AM Best. The report also examines the potential consequences of a successful completion to the proposed four-way merger between Unipol, Fondiaria-Sai, Premafin and Milano Assicurazioni that will create a rival to Assicurazioni Generali. Yvette Essen, the report author and Director of Industry Research, Europe and Emerging Markets said: "With three major players set to dominate the market after the merger, with Allianz remaining the third-largest non-life insurer, the insurance industry is looking for stronger governance from a new insurance regulatory body to protect the interests of smaller participants. The three biggest insurers would control almost 60% of the non-life market, widening the gap between the key players and the smaller companies." The implications of the planned four-way merger are unclear, but some market participants believe the deal, which has regulatory approval but still carries execution risk, could lead to reduced competition, particularly for motor risks, noted the rating agency.

Rating environment mixed in challenged Italian market says AM Best

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