A negative outlook is haunting European non-life, sweeps up Italy

Insurance sector ratings agency  AM Best is seeing more and more dark clouds over Europe, downgrading the outlook on a third non-life national insurance sector to negative within two weeks.

Italy's non-life segment earned the latest downgrade on a mix of very familiar concerns over economic outlook, plus local concerns over a tight motor market and an overconcentrated investment portfolio, a segment report from  AM Best showed.

“Uncertainty surrounding the economy could halt the segment’s growth,” analysts warned in research redolent of recent concerns for France and Spain.

AM Best is kindling “heightened concern about a potential recession” as the war in Ukraine further disrupts supply chains and bears down on energy markets while inflation brings threat of monetary tightening.

Economic uncertainty, often exacerbated by the fallout from the Ukraine war, led the list of reasons behind similar decisions earlier in April to put the outlook for French and Spanish non-life sectors to negative.

On the local front, Italian motor segment premiums continued to fall in 2021 as “competition in the market remains intense.” That has pinched margins to date, but  AM Best believes the sub-segment will “remain profitable” in 2022 as rates “stabilise somewhat” following claims inflation and a normalisation of frequency.

Investment portfolios bring a separate layer of risk. Italian insurer portfolios “tend to be highly concentrated, with large positions in Italian sovereign debt” with notoriously volatile spreads,  AM Best notes. Italian insurers likewise have higher exposure to lower-rated corporate debt than their European peers.

AM Best had recently held the outlook for the UK non-life sector at negative. The four announcements are the first on the European non-life outlook released to date in 2022.

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