S&P’s Outlook on Italian Insurance Market is “Negative,” but “Improving”

January 9, 2003

Standard & Poor’s has just completed a review of the Italian insurance market, and announced that “the ratings outlook for the market is negative, reflecting an expected downward trend in insurer financial strength ratings over the coming year.”

“Despite improvements in various lines of business over the past year, some ratings remain pressured and downgrades are therefore likely to outweigh upgrades,” stated S&P credit analyst Laura Santori. “Nevertheless, negative rating actions are likely to be few in number and largely due to issues that do not necessarily reflect the dominant trends in the market.”

S&P expects the non-life market to have improved operating performance and “better technical results for motor third-party liability, and improvements in some minor lines such as general liability, marine, and aviation and transport,” in 2003.

“The ongoing profitability of the market remains pressured by political intervention, however,” said the bulletin. “The Italian government recently imposed a new tax law that limits the level at which technical reserves are deductible and will inevitably result in increased costs for insurers.”

S&P also said that the freeze on rate increases in the automobile sector between 2000 and 2001 had adversely affected the market, and confirmed the impression that Italian insurers were potentially subject to further government intervention.

The life insurance sector has retained its profitability, although it has been lowered somewhat by the fall in global financial markets. Santori said this would actually boost the life sector, as investors sought safer and more guaranteed products.

S&P concluded with an optimistic assessment of the potentials for future growth in Italy, noting that it’s “significantly higher than in other European markets.” The big insurance groups are “setting up impressive distribution networks and transforming themselves into financial services providers, increasing the potential for cross selling and boosting customer loyalty.”

This has created new opportunities. “There is a pressing need for private pensions due to the growing uncertainty related to the public pension system, and although private pension plans have been slow to develop, further revisions of the legislation governing pensions are expected to help the market take off,” Santori indicated.

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