S&P Gives Italian Insurance Market a Stable Outlook, Cites Good Fundamentals

November 19, 2003

A recently published report from Standard & Poor’s Ratings Services notes that it has revised its outlook for the Italian insurance market to stable from negative, citing good business fundamentals in both the life and non-life sectors.

“Many of the negative outlooks on ratings in the market at the beginning of the year have now been revised to stable. Meanwhile, with the level of profitability across the industry robust and a notable opportunity for profitable future growth in the life market, ratings are expected to remain stable over the coming year,” stated S&P credit analyst Laura Santori, one of the authors of the report.

S&P indicated that the life market posted an 18.4 percent increase in gross premiums written to 54.7 billion euros ($65 billion) in 2002, and “continues to present significant growth potential, given its low penetration rate and the high savings appetite among Italian households. During 2002, traditional agents and financial advisers experienced resurgent sales at the expense of their bancassurance competitors, largely due to product offerings that better fulfilled customers’ flight to security.”

Santori noted that bancassurers have responded, to the challenge by “adapting their offerings by applying capital guarantees to their products. However, insurers are strengthening their distribution channels and the life sector’s distribution profile is expected to remain fairly stable over the medium term.”

S&P said “Italy’s non-life insurance market is also underdeveloped, but does not have the same potential for growth as its life market.” Santori concluded that “significant growth could only stem from personal lines outside of motor, but the lack of insurance culture, generous state benefits, and unattractive product offerings provide little incentive to potential policyholders. Even the government’s plan to make property coverage compulsory is not expected to lead to significant growth, as state protection will be withdrawn slowly.

“Nevertheless, non-life profitability will remain good due to structural improvements in the motor market. Increased underwriting discipline, a new law governing motor third-party liability (TPL), and improved traffic control have led to reduced claims frequency in the market, a trend that is expected to soften the downside of the non-life insurance cycle over the long term.”

Although it described the Italian non-life market as generally stable, S&P did point out that third party liability claims resulted in losses of 455 million euros ($541 million) in 2002, causing some companies to reduce their exposure to some of the most troubled categories in this line. “Some general TPL lines, for example professional liability, have experienced escalating claims costs, and insurers’ negative response could lead to a capacity shortage in the near future that might require state intervention,” Santori added.

S&P said that the report, “Strong Demand, Structural Improvements Yield Stable Outlook for Italian Insurance Market,” which was published on Nov. 18, 2003, is “available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com,” or through any of its local offices.

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