Fitch’s Sector Outlook for UK Non-Life: Stable – French Non-Life: Negative

December 17, 2015

Fitch Ratings has issued reports on both the UK and the French non-life insurance sectors.
The UK report indicates that “operating conditions within the UK non-life company market are expected to remain stable in 2016.” Fitch said, however, that it has revised its sector outlook for French non-life insurance to negative from stable.”

Fitch said it expects the current direction of UK motor premiums to change, “with recent rises stalling, as the consequences of the UK government’s autumn statement are realized. A new set of measures by UK government to tackle the exaggerated costs of minor bodily injury claims was announced in November 2015.”

According to, the report, “these measures will eventually lead to lower claims costs for insurers,” but Fitch said it also “expects motor insurers to respond cautiously until they see the evidence of reduced claims costs.

“Following three years of decline, further reductions in household rates are expected to be smaller, as insurers become more sensitive to lower profit margins. Low interest rates will continue to suppress investment income – the main contributor to insurers’ earnings.”

In conclusion Fitch said it nonetheless “maintains a Stable Rating Outlook on its rated UK non-life insurers, as the company market’s strong capital adequacy and stabilizing earnings offset pressures from low investment income and limited growth opportunities.”

Although Fitch has lowered its outlook for the French non-life sector, it has also maintained a stable outlook for French non-life insurance companies, which, the report said, reflects “the proportion of company ratings on Stable Outlook.”

According to the report Fitch “expects that premium growth and profitability of French non-life insurers are likely to deteriorate in 2016.” It is projecting a “normalized combined ratio of 102 percent in 2015 and 103 percent in 2016 and non-life premium income growing by 2.6 percent in 2015 and 1.6 percent in 2016.”

Fitch also said it “expects tariffs to only marginally increase in 2016 after two years of strong price rises. Competition in both personal and commercial lines is intense and the rise of aggregators on the internet, supported by regulation changes that enable policyholders to cancel policies beyond the anniversary date (Hamon Law), are likely to squeeze margins and add to pricing pressure. Commercial lines are currently profitable in France, which attracts capacity and continues to intensify competition.”

In addition the report explained that “weak economic growth and the increase in low-cost offers, which are more attractive to policyholders looking for less expensive and simpler insurance products, have weakened premium growth. The growth in premium income has largely been driven by tariff changes since 2011, rather than by any increase in volumes of policies and guarantees. This is a trend that is gradually beginning to reverse.”

In the French motor market Fitch said: “Underwriting profitability is under pressure as claims frequency and average claim severity continue to rise, particularly for bodily injury claims. Fitch believes that lower tariff increases, stiff competition and legislative changes will reduce the level of profitability achieved by French non-life insurers in 2016.”

On a more positive note, Fitch indicated that it “expects French non-life insurers to fare well under Solvency II. According to the latest study published by the Autorit√© de Controle Prudentiel (ACPR), non-life reserves under Solvency II will be lower on average than their book value and own funds will be higher than under Solvency I.

“French non-life insurers’ capital position under Solvency I remains strong, supporting their ratings, although it is boosted by unrealized capital gains on fixed income investments, which reduces the quality of capital.

Source: Fitch Ratings

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