Asset risk ‘most significant pressure point’ for Italian life and P&C insurers

Research from Moody’s Investment Service has found that the outlook for Italian life insurers has changed to stable from negative.

This shift was recorded as pressure from worsening financial market conditions, originally seen in the first part of 2020, started to ease.

The findings were unveiled in a report published by Moody’s today.

The report also said that the outlook for Italy’s property and casualty (P&C) sector remains stable, reflecting healthy credit fundamentals.

“Life insurers earnings are still benefiting from sound earnings and relatively low guaranteed rate commitments, compared to many European peers,” the investment service said. “Although Solvency II ratios remain highly sensitive to market movements, they have recovered thanks to the significant drop in spreads on Italian government bonds as well as from not paying dividends. Premium growth is expected to remain muted in 2021, as disposable incomes only recover gradually.”

Christian Badorff, vice president and senior analyst at Moody’s Investors Service, said: “Lower guaranteed rates on traditional products facilitate the management of interest rate risk for Italian insurers, with investment returns able to cover their financial obligations to customers.

“Asset risk is the most significant pressure point for Italian life and P&C insurers due to their high concentration to domestic government bonds and other domestic credit risk fixed income investments,” he said.

P&C insurers in the country benefited from lower claims frequency in retail lines, and motor in particular, as lock-down measures resulted in lower mobility throughout 2020.

The negative impact from business interruption claims and other pandemic-related claims was very limited compared to other jurisdictions.

Looking to 2021, Moody’s said P&C claims are expected to trend towards pre-pandemic levels. At the same time, pressure on prices and volumes will likely hold back premiums in 2021, putting pressure on underwriting profitability.

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