Italian motor premiums forecast to rise after four-year decline

Italian motor insurance premiums are likely to rise in 2017 for the first time in years as low investment returns push insurers to target underwriting profits, according to Fitch Ratings.

Life insurers will also seek to diversify their sources of profits and these trends inform the rating agency’s sustained Stable Outlook for the sector in 2017, Fitch said.

Motor premiums in Italy have not risen since 2012 due to increasing use of telematics products (devices fixed in vehicles to track driving behaviour), strong competition and subdued economic conditions. But telematics growth is likely to slow and claims frequencies are starting to rise, which should contribute to the reversal of the recent pricing trend, Fitch said.

In addition, investment returns, which have been an important source of profit for Italian insurers, will remain low due to low yields on fixed-income assets. Non-life firms are likely to try and compensate by targeting underwriting profits in motor insurance and by increasing penetration of non-motor insurance, which is lower than other European countries.

“A similar trend among life insurers will see firms rebalancing their business mix towards fee-based products, such as hybrids and unit-linked products, and away from spread-based business where low investment returns are squeezing margins,” Fitch said.

“They are also likely to target sales of protection and pension products as the state reduces its involvement in this segment.

“While low rates are hitting profits, we do not see them as a significant threat to Italian insurers' balance sheets and capital strength. This is because assets and liabilities are typically well matched by duration. Interest-rate risk is also likely to reduce further in 2017 due to lower minimum guarantees on new business and the run-off of legacy portfolios with higher guarantees.”