Economic uncertainty, declining profitability and elevated risk profiles are causes for concern 

AM Best has revised its outlook for the Italian non-life insurance segment to Negative from Stable. Factors that support the Negative outlook in 2022 include:

  • Uncertainty surrounding the economy could halt the segment’s growth
  • Declining underwriting profitability driven by a competitive motor market
  • Elevated risk profile stemming from a concentrated investment portfolio

The rating agency notes there has historically been a direct relationship between Italy’s real GDP and non-life premium growth in the country. The COVID-19 pandemic and government-mandated lockdowns in 2020 drove a severe contraction in the Italian economy.

The impact on the non-life insurance segment was significant, with a contraction of over 2% in GWP in 2020, according to the Italian Association of Insurance Companies (ANIA).

While the non-life segment recovered during 2021, with premium volumes above those of 2019 levels, reflected the economic recovery in the country more broadly and aided by economic stimulus from central banks, the outlook is now more uncertain.

The potential appearance of new variants of COVID-19 along with disruptions in energy and commodity markets and supply chain disruption could further constrain economic growth. Inflation, notes Best, is being exacerbated by the conflict in Ukraine and international sanctions imposed on Russia. 

Factors moderating these negatives include:

  • Limited exposure to catastrophe losses
  • Resilient risk-adjusted capitalisation

Although recent natural catastrophes have resulted in high economic losses in Italy, insured losses have been relatively low, notes Best, highlighting the country’s significant protection gap.

”Italy’s insurers typically cede the vast proportion of their catastrophe risk to the reinsurance market, materially limiting their net exposure,” it says in its Segment Outlook.

Further, the risk-adjusted capitalisation of Italian insurers is generally at a good level. AM Best considers that at current solvency levels the segment has a good buffer in place to absorb some degree of volatility.

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