Rising claims and falling profits will not turn French market yet

Non-life insurers in France have warned that prices are about to rise again, as their results come under pressure and tougher new regulatory rules loom. This gloomy view of the market for French insurance buyers was recently reinforced by a report by Fitch, the credit rating agency, which said that it believes that insurers will not be able to dodge a harder market for much longer. But current evidence suggests that a market turn could be very hard to achieve for the French insurers as the persistently soft insurance market shows no sign of turning in the short run, according to risk managers and brokers. In a recent report, Fitch said that increased claims and poor financial results would encourage non-life insurers to raise premium prices, especially in property lines. 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 claims have been rising because of a surge in natural catastrophes. hideThe rating agency said that the French non-life market is saturated and it is difficult to find new clients in such a competitive environment. New business volumes are therefore not sufficient to outweigh the low prices. SHARED PESSIMISM The pessimism is shared by plenty of insurers, some of which have recently been quoted in the French press claiming that they will not be able to keep prices down in such a market. “Many non-life insurers will publish very bad results in 2010 and the situation should be similar next year,” said Jean-Luc de Boissieu, Secretary General 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 continued. But 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,” said Brune Costes, who is in charge of AMRAE’s Insurance Market Review. “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,” she added. French insurance buyers have benefited from the entry of a number of new providers in the market, such as Torus, Amlin, Mitsui Sumitomo, Tokio Marine and Mapfre, which are helping to keep everybody on their toes. “There has been a significant input of new players, especially from the London market,” said Renaud de Pressigny, General Director at broker Gras Savoye. The economy is not on the side of the insurers either. France is doing better than other rich countries currently, 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, Technical Director, Reinsurance, Marsh, in Paris. “In the current situation, it would be difficult for many of our clients to accept premium hikes,” explained Mr de Pressigny. The prospects of a harder market in 2011 are therefore slim. Prices are generally 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 a huge amount. “I do not see a sharp increase of premiums in 2011,” he said. “They should go up by 1, 2 or 3 percent points next year, but this will not be sufficient to bring companies back to profitability.” There are exceptions. Financial companies that were hit so hard by the credit crisis and resultant law suits still find it very difficult to find competitive policies in areas such as general liability and D&O in particular. And the plight of insurance buyers in the financial sector was made more difficult after AXA, a leader in this particular sector, withdrew from the market, said Mr Gey. Prices are on the rise 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,” AMRAE’s Ms Coste pointed out. Mr De Pressigny noted that the price of coverage for medical expenses is on the rise too, as a result of a surge in medical costs. Ms Costes also said that, although the competition is fierce, insurers remain cautious. “They are ready to sign deals of up to three years, but they are still very focused on how you manage your risks,” she said. This approach is not new, but it has been intensified by the financial and economic crises. “Large insurers have become more selective in their strategies to underwrite corporate risks in the past five years,” pointed out Pierre Planchon, French Insurance Industry leader at Ernst & Young in Paris. The market has also evolved positively in smaller lines like political risks, which are gaining in importance as French companies increasingly look overseas to find drivers of growth that are becoming scarce at home. “There is a slightly more attractive market for political risks today than some months ago,” Ms Brune 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 pointed out. REGULATION CONCERNS For insurers, the resilient soft market and the prospect of continuously higher claims are not the only challenges they are likely to face in the years to come. Regulation also presents a major source of concern for them. “Solvency II is the biggest issue in the French insurance market today,” said Mr Planchon. “It is at the top of all agendas.” In some cases, French insurers have stressed that the higher standards set by the new rules will provide further pressure on premiums. But Mr de Pressigny thinks that it is still early to say anything definitive about the impact the rules will have on the market. “Solvency II could have a mixed effect, as it can also lead some insurers to diversify their activities and enter new lines,” said Vincent Natier, Tax Partner, at Ernst & Young Société d’Avocats in Paris. A more immediate concern 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.

Rising claims and falling profits will not turn French market yet

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