SCR coverage ratio for Italian insurers at 228%; warnings issued as bond spread levels increase by over 35%

Written by Adam Cadle

14/05/2020

The risk adjusted capitalisation of Italian insurers is “generally at a good level”, evidenced by an average SCR coverage ratio for life and non-life of 228%, but warnings must sound over exposures to Italian government debt, particularly with increases in bond spread levels having increased by over 35% in a single day, AM Best has said.

In its latest report on the Italian insurance market, AM Best said the SCR coverage ratio for the market fell from a peak of 243% at year-end 2017, but remains healthy, “however exposure to Italian government debt in investment portfolios remains considerable, despite the efforts of life and non-life insurers to reduce it (43% in 2018 compared with 48% in 2016).

During 2019, the Italy-Germany 10-year bond spread decreased substantially from the peak reached in October 2018. However, during March 2020, spread levels were highly volatile, with increases of over 35% on 12 March.

AM Best noted that, although the exposure of Italian non-life insurers to sovereign debt is considerable, the sensitivity of their balance sheets to changes in credit spreads is significantly lower than of life insurers, due to the shorter duration of non-life carriers’ investment portfolios.

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