French Non-Life Credit Fundamentals To Deteriorate In 2023: Fitch

According to Fitch Ratings, while the life segment will largely remain constant over the next 12 months, the credit fundamentals in the French non-life insurance sector will deteriorate as insurers adjust to changing market and macroeconomic regimes.

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Because of decreased technical profitability, Fitch anticipates lower non-life segment earnings; however, this will be partially offset by higher investment income.

The rating agency also warns that rising claims and reinsurance costs brought on by climate change and persistently high inflation will reduce underwriting margins, especially in retail property and casualty insurance, where pricing dynamics are less favorable than in commercial property and casualty and health insurance.

However, Fitch adds that French non-life insurers have historically been prudent in setting reserves and are well diversified by business lines, so, despite the aforementioned headwinds, it expects overall reserves buffers to remain robust.

French Non-Life Credit Fundamentals To Deteriorate In 2023: Fitch

As for the French Life sector, Fitch’s outlook remains neutral, as it expects the fundamentals will be resilient throughout 2023.

It adds that while rising rates are supportive of technical margins on general accounts reserves, they will not lead to a meaningful improvement in profitability for several years. Fitch also notes that lower assets under management could reduce unit-linked management fees.

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Meanwhile, the rating agency anticipates that recessionary risks will pressure sales volumes, which when combined with higher rates, will lead to rising, albeit manageable surrenders. It notes, “The long-term value proposition of traditional products and insurers’ ability to increase crediting rates using profit-sharing reserves are key mitigants to lapse risk.”

As for the overall Outlook, Fitch expects French insurers’ ratings to be resilient to a moderate deterioration in the market and macroeconomic conditions, given their strong capital strength and business diversification. However, ratings headroom on some credits may still not be sufficient to absorb a severe downside scenario.

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