Italian life insurance outlook changes to stable; asset risk ‘most significant pressure point’ for all insurers

Written by Adam Cadle

18/03/2021

The outlook for Italian life insurers has changed to stable from negative, following the easing of immediate pressure from the worsening financial market conditions in the first part of last year, Moody’s Investors Service has said.

At the same time, the country’s property and casualty (P&C) sector outlook remains stable, reflecting healthy credit fundamentals.

“Lower guaranteed rates on traditional products facilitate the management of interest rate risk for Italian insurers, with investment returns able to cover their financial obligations to customers,” Christian Badorff, a vice president and senior analyst at Moody’s Investors Service, said.

Asset risk is still the “most significant pressure point” for Italian insurers due to their high exposure to domestic government bonds and other domestic fixed income investments, Moody’s emphasised.

Italian government bonds (rated Baa3) accounted for 42% of Italian insurers’ total investments as of half-year 2020. Their domestic sovereign exposure is much higher than that of other European insurers.

Italian insurers’ investments in domestic government bonds has fallen from YE 2016, when they accounted for 48% of the total portfolio. The share of foreign government bonds and funds within the portfolio has risen from 6% at the same date to 11% as of half-year 2020.

Moody’s added that Italian insurers’ capitalisation remained resilient overall in 2020, after a drop in Solvency II ratios during the first half of the year due to market volatility. However, their capital remains sensitive to movements in credit spreads.

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