Ratings agency Moody’s has changed its outlook for the Italian life insurance sector to stable from negative, and maintained its stable outlook for Italian property and casualty (P&C) insurers.
Analysts highlighted how Italian life insurers were hit by record net outflows in 2023, which was a reflection of high surrenders of savings policies and weak new business sales because of competition from higher yielding banking products and domestic sovereign bonds.
Moody’s explained that Italian life insurers’ overall capitalisation remains sound, despite relatively high exposure to risky assets and credit risk.
Meanwhile, the agency’s stable outlook for P&C insurers reflects Moody’s view that pricing has largely caught up with claims inflation, especially within the motor segment.
However, analysts noted that the recent increase in the severity and frequency of natural catastrophes, combined with reduced reinsurance protection, could weigh on Italian P&C insurers’ profitability in 2024 and 2025. But, the effect is expected to be milder in comparison to 2023.
Moving forward, analysts expect Italian real GDP to grow by 0.9% in 2025, up marginally from 0.7% in 2024.
“We also anticipate that inflation will rise modestly to 1.9% from 1.3%, that unemployment will hold steady at 7.2% and that interest rates will decline while remaining above long term averages. This makes for a broadly supportive economic environment for both life and P&C insurers,” analysts explained.
The agency also stated how changes in legislation and regulation bring uncertainty.
“The proportion of Italian households and small businesses without insurance is among the highest in Europe. A recent legislative proposal aims to reduce this protection gap by making natural catastrophe insurance mandatory for all businesses, while obliging all insurers to offer catastrophe cover. The law will increase P&C insurers’ premium volumes, but its impact on profitability will depend on whether they can price appropriately and apply proper underwriting criteria. Insurers will also need to obtain adequate reinsurance protection,” Moody’s explained.
Lastly, analysts noted that Italian insurers are continuing to report strong Solvency II ratios, although these are typically not fully reflective of the risks associated with their exposure to domestic sovereign bonds.
“Insurers have reduced their exposure to Italian government debt, making their Solvency II ratios less sensitive to movements in domestic sovereign credit spreads, but have increased the share of alternatives in their asset allocations. The review of the Solvency II capital regime will likely have a moderately positive effect on Italian insurers’ Solvency II ratios, thanks in particular to changes affecting the volatility adjustment,” Moody’s concluded.
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