AM Best revises Italy’s non-life insurance segment to stable

Rome: Global credit ratings agency AM Best has revised its outlook on Italy’s non-life insurance segment from negative to stable, citing growth momentum supported by tariff adjustments and stabilisation of the economic environment.

Italy-Flag-MapIn a report, the agency explained that it expects non-life insurance gross written premium (GWP) to continue to grow at a steady pace throughout the year.

According to the International Monetary Fund (IMF), Italy’s inflation rate is expected to stabilise while real gross domestic product (GDP) is projected to grow by 0.7%.

According to Associazione Nazionale fra le Imprese Assicuratrici (ANIA), non-life GWP grew by 7.7% in 2023, making it the fourth consecutive year of growth.

While, Motor GWP – which accounts for just over a third of the segment’s premiums – returned to growth in 2023 after a number of years of contraction driven by high levels of competition.

Additionally, AM Best noted that the segment has successfully navigated inflationary pressures, and that it expects the impact of inflation to reduce in 2024.

“While competition will remain a headwind for the industry, tariff increases applied during the year will be a source of relief and are expected to continue to offset the impact of inflation on the motor business, reversing the downward trend in profitability,” analysts noted.

However, performance will also continue to be supported by consistently well-performing non-motor lines of business, as well as improved investment income, analysts added.

Moving forward, AM Best highlights how elements of the 2024 Budget Law may pose a challenge for property business across Italy.

For those who are not aware, the 2024 Budget Law (Legge 30 dicembre 2023, n. 213) introduced the duty for corporate entities to buy coverage against earthquakes, floods and landslides.

From what we understand, details on the implementing act, such as expected limits, are yet to be finalised; but, preliminary market estimates are heavily suggesting that the insured value could potentially double.

As the law is already in force, corporate entities will need to comply with this decree by December 31, 2024, AM Best explained.

“Natural catastrophe risks have historically been mostly ceded to the reinsurance market, materially limiting insurers’ net exposures. After the full implementation of the Budget Law, the future performance of these lines will be dependent on reinsurers’ appetite for natural catastrophe risks. It is noted that if insurers are unable to find the desired level of protection, they may be exposed to the potential for increased volatility in results,” analysts said.

An important factor to highlight, Italy currently has the second highest protection gap score for natural catastrophes across Europe, according to EIOPA’s “Dashboard on Insurance Protection Gap for Natural Catastrophes”, which is due to a combination of both the frequency and severity of perils along with low levels of insurance penetration.

Lastly, AM Best concludes by stating that it expects 2024 to be a year of “solid and healthy growth for the segment,” with performance continuing to be supported by consistency in non-motor lines of business, as well as improved investment income.