S&P Negative on Future of French P/C Insurance Market

April 22, 2002

Standard & Poor’s announced that it has a divided outlook for the French insurance market, “taking a negative view of its non-life sector and heralding a stable future for the country’s life market.”

“The outlook for the non-life market, which takes a long-term view, highlights the extreme competition in the market driven by the large, low-cost personal lines mutuals. Rate increases have been restricted, and insurers’ implementation of cost-cutting programs has yet to show,” said the announcement. It also noted that the loses from the explosion at the AZF Chemical plant in Toulouse in September had now risen to over $1.3 billion, while the industry was still trying to cope with almost $7 billion in losses from 1999’s windstorms.

“Despite 2000 marking a turnaround for the market, with its average combined ratio decreasing 3.7 percentage points to 110.8%–the first sector-wide drop since 1996–further improvements will be slow in coming,” stated Yann Le Pallec, a director at Standard & Poor’s Financial Services Ratings Group in Paris.”In addition, with the exception of the top tier of rated insurers, solvency ratios in the market, although still strong, have gradually deteriorated.”

Le Pallec noted that many French p/c insurers are now offering services such as financing and breakdown assistance in an effort to set themselves apart from the competition, but that their success so far has been limited. He also indicated that “The Internet, while proving a successful marketing tool, has also been rather disappointing in terms of underwriting.”

The report stressed that “distribution remains one of the key competencies for insurers’ success going forward,”and noted that, “a number of insurers are looking to renegotiate their compensation schemes with tied agents, although progress has only been gradual and varies from one company to another.”|”sp, negative, on, future, of, french, p/c, insurance, market

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