French non-life insurers’ profits at risk from soft prices

Pricing competition and a continuing soft market will weaken French-non life insurers’ earning in 2016, according to a report from Fitch Ratings.

The French insurers saw intense competitive pressure on pricing in the first half of 2016, both in motor and non-motor, notably, commercial lines.

Fitch expects these trends to continue in 2H16 and 2017, and maintains a negative outlook on the sector.

Their profitability in the first was hit by larger losses from natural catastrophes, driven in part by the Paris floods in June, and reserve increases for some business lines, needed because of lower interest rates.

The claims from natural catastrophes add an average of two to three points to combined ratios year-on-year.

Fitch noted that attritional claims also increased, with motor claim frequency and severity rising, particularly for bodily injury claims.

According to the report, lower interest rates forced insurers to increase their reserves for long-tail business lines, and Fitch does not expect companies to be able to offset this with price increases in 2016, given the competitive market.

The ANI law, which introduces mandatory group health insurance for SMEs, represents a major growth opportunity for insurers and intermediaries. However, Fitch expects profit margins to be thin, reflecting competition and weaker pricing compared with individual policies.