Fitch Ratings has indicated that most Italian
life insurers could be downgraded in the next 12-24 months as the
country’s insurance sector rating outlook remains negative.
The ratings agency said the eurozone debt
crisis, despite showing signs of stabilisation, will continue to
exert negative pressure on Italian
insurers’ ratings in the short to medium term.
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Fitch Ratings said the Italian insurance
industry is highly exposed to the eurozone debt crisis through its
significant holdings of Italian sovereign debt.
It said Italian insurers hold €230bn of
government bonds in their investment portfolios and another €90bn
of corporate bonds, most of them from banks, according to the
latest estimates released by ANIA, the association of insurance
companies.
Fitch says insurers’ capital adequacy could be
threatened by prolonged period of wide credit spreads on Italian
sovereign debt and an unstable equity market. Fitch rates Italy at
‘A-Negative’.
Risk exposure
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By GlobalDataAccording to the rating agency, Italian life insurers are generally exposed to credit
and interest rate risks through their traditional with-profits
business, known as segregated accounts.
The income yield on assets is currently
sufficient to cover the guaranteed returns on these policies, which
have to be met annually, said Fitch Ratings.
In addition, most new guarantees apply only at
maturity, rather than accruing year-by-year, allowing companies
greater flexibility in dealing with low investment returns.
However, Fitch Ratings said the risk remains that the credit
default experience could be greater than expected.
An adverse macroeconomic environment and
austerity measures constraining households’
available income means life insurance growth is likely to
remain subdued in 2012 and most of 2013,
according to the ratings agency.
It added that the profitability of the Italian
life insurance market continues to be affected by persistent market
volatility, wide credit spreads and low swap rates.
However, Fitch Ratings forecasts that compared
to 2011, embedded-value losses on participating products could turn
into small profits in 2012, due to narrower credit spreads.
