Fitch Ratings says in a newly-published report that Italian insurers' growth and profitability will remain subdued, potentially until the end of 2013. This will negatively affect their operating performance despite better underwriting profitability.
As a result, the ratings Outlook for the Italian insurance sector remains Negative.
"The eurozone crisis continues to represent the greatest challenge facing Italian insurers," says Federico Faccio, senior director in Fitch's Insurance team. "This, together with a challenging transition to Solvency II for the Italian insurance market, is likely to keep ratings under negative pressure in the next 12-24 months."
2011 results have shown a general decline of insurers' capital adequacy and life operating profitability, as a consequence of the impact of the eurozone crisis on the Italian bond market and equity markets in general. However, better technical results also indicate that life insurers have taken some effective actions on product guarantees and pricing.
Non-life underwriting margins have benefited from portfolio pruning and price adjustments over the last few years. However, growth is likely to remain subdued as households reduce cover, new car sales languish and competition remains tough in commercial lines.
Mark-to-market of assets under Solvency II could make Italian insurers' solvency capital volatile due to its dependence on market values of government bonds, which is not offset by a corresponding change in the value of the liabilities. Other issues relevant to the Italian insurance market are the final calibrations of non-life charges as well as the calculation of the counter-cyclical premium.
Fitch will hold a teleconference to discuss the main findings described in the report. The report, entitled "Italian Insurers Face a Demanding 2012; Sovereign Risk and Solvency 2 Set to Weigh On Growth and Profitability", is available on www.fitchratings.com.
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