S&P Study Finds French Insurance Market Stable

According to a report published by Standard & Poor’s Ratings Services the outlook on the French insurance market remains stable, despite downward pressure on motor rates and only “recovering financial conditions.”

“The stable outlook indicates that insurer financial strength ratings in the market are more likely to remain the same than to change,” S&P said. “The key factors supporting the market’s continued stability are underwriting discipline and strong capitalization in the property/casualty sector, and positive long-term growth prospects, bonus rate discipline, conservative investment policies, and a progressive shift toward less capital-consuming unit-linked products in the life sector.”

S&P credit analyst Yann Le Pallec noted: “The market as a whole boasts strong capitalization, conservative reserving, and strong levels of financial flexibility. Moreover, it is supported by a stable fiscal environment in life insurance.”

However, S&P did express some concerns over a number of uncertainties. The possible effects on the market of the implementation of International Financial Reporting Standards (IFRS) and Solvency II headed the list. S&P said that, if the IFSR standards are implemented in their current form, they “could create mismatches in the valuation of assets and liabilities, and therefore could affect life insurance policies in force today.”

S&P also found evidence that pricing discipline in the P/C market “looks to be slipping as rates peak, most notably in the motor sector.”

The report also pointed out that distribution channels are changing. “Although the mutuals remain the cornerstone of the property/casualty retail market, bancassurers now represent 8 percent of premium income, and are taking an aggressive stance in growing their presence in the property sector by offering policies tied to attractive mortgage rates,” it continued. “Meanwhile, bancassurers are maintaining their dominance of the life markets, with a 62 percent market share. Across the sector, new business margins are expected to rebound on the back of a less capital-intensive business mix, although low interest rates and stock prices still weigh heavily on investment spreads.”

S&P credit analyst Emmanuelle Calès observed: “For the first few months of 2004, the sector reported growth in unit-linked business of 46 percent. At the same time, the market has started to benefit from growth in the new pensions business, with 825,000 contracts sold since the beginning of 2004, mostly by bancassurers. Although long-term winners have yet to emerge, such statistics are clearly supportive of our expectation that medium-term cash flows should remain strong across the industry.”

The French insurance market is the fifth largest in the world, with gross premiums written of €141.8 billion ($184 billion) at year-end 2003, accounting for 16 percent of total European insurance premiums written.

The report, “French Insurance Market Review,” is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com. Ratings information can be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search. Alternatively, call one of the following Standard & Poor’s numbers: London Ratings Desk (44) 20-7176-7400; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5916; or Moscow (7) 095-783-4017.