2020 outlook for Italian insurance sector stable; holdings of sovereign bonds support investment returns

Written by Adam Cadle

02/12/2019

The 2020 outlook for the Italian life and P&C insurance sectors is stable, reflecting robust earnings, moderate premium growth in P&C and a favourable shift in life new business mix, according to Moody’s.

Moody’s said Italian insurers have been “less negatively affected by falling yields than other European peers”. However, while the insurers’ large holdings of Italian sovereign bonds have supported investment returns, they are source of asset risk that could hamper capital adequacy”.

The macroeconomic outlook for Italy is relatively weak offering little support to insurers, given slow growth and flat unemployment. Real GDP growth in Italy of just 0.2% in 2019 and 0.5% in 2020, is weaker than in other advanced economies and the unemployment rate is to remain close to current high levels at around 10%. Italy’s government debt ratio is to remain elevated at close to the current 135% of GDP.

Italian insurers’ credit risk is high, reflecting high exposure to domestic sovereign bonds and other low rated investments.

Solvency II (SII) ratios are generally strong, but do not reflect Italian sovereign credit risk and they are also sensitive to financial market movements, particularly sovereign spread changes. For the industry as a whole, a SII ratio of 220% ratio was recorded for H12019.

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