In April of this year, ICMIF Supporting Member AM Best revised its market segment outlook on Italy’s life insurance market to negative. Key factors that led to the change in outlook include the exposure of earnings and solvency positions to material asset devaluations and ongoing volatility across all asset classes driven by the coronavirus (COVID-19) pandemic, as well as the sensitivity of Italian life insurers’ balance sheets to changes in credit spreads.

The Best’s Market Segment Report, Market Segment Outlook: Italy Life, cites an expected decline in premium volumes, and an increased risk of bond defaults due to deteriorating economic conditions, as negative trends.

The report noted that these factors are partially mitigated by the effective asset-liability matching in place across the industry, a generally healthy margin between investment income and average minimum guarantees on traditional life policies, and the sector’s ability to absorb a degree of financial market volatility due to buffers in solvency levels.

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In its Best’s Market Segment Report, titled, Market Segment Outlook: France Life, AM Best revised its market segment outlook on France’s life insurance market to negative. Key factors that led to the change in outlook included the significant economic and financial headwinds driven by the coronavirus (COVID-19) pandemic, which are expected to negatively impact premium levels and asset valuations, as well as sustained pressure on results and solvency ratios stemming from the continued low interest rate environment.

This report, issued in April, also cited sensitivity to interest rate movements due to the high proportion of long-duration, euro-denominated business, and the increased risk of corporate bond default due to deteriorating economic conditions, as negative trends.

The report noted these factors are partially offset by the French population’s historically high propensity to save, with traditional life savings products remaining the preferred investment vehicle, supported by associated tax advantages and a proactive response to the low interest rate environment. Insurers have lowered crediting rates and guarantees on traditional savings products, as well as increasing the proportion of capital-efficient, unit-linked products in their portfolios.

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Also in April, AM Best said that it was maintaining its market segment outlook on the French non-life insurance market at stable. Key supporting factors include the sector’s resilient underwriting performance against a backdrop of significant competition, modest but regular price increases in core classes of business and good diversification by class of business.

The Best’s Market Segment Report, titled, Market Segment Outlook: France Non-Life noted that in 2020, non-life premium levels are expected to drop as commercial activity in France has stalled amid restrictions imposed in response to the COVID-19 pandemic. France is expected to enter recession this year, but its potential severity and the timing of a rebound are uncertain.

AM Best noted that the French non-life segment’s diverse business mix is expected to moderate the impact of the pandemic and expected contraction in GDP on insurers’ premium volumes. Compulsory insurance products, such as motor, are expected to be more resilient to an economic downturn and provide an offset to pro-cyclical markets, such as credit or construction insurance, which are expected to see larger drops in premium.

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According to the May 2020 Best’s Market Segment Report, titled, Market Segment Outlook: Italy Non-Life, AM Best is maintaining its market segment outlook on the Italian non-life insurance market at stable. Key supporting factors include AM Best’s expectation that strong underwriting profitability will be maintained, as well as sound solvency levels among Italy’s non-life insurers, which have a buffer to absorb a degree of financial market volatility.

The Best’s Market Segment Report, Market Segment Outlook: Italy Non-Life, also cites the fact that Italy’s non-life insurance companies’ balance sheets are generally less sensitive to changes in credit spreads (i.e., compared with life insurers) due to the shorter duration of investment portfolios.

The report notes these positive factors are partially moderated by the expected economic downturn, which is likely to halt the expansion of the segment, especially in non-motor lines, and asset devaluations and ongoing volatility across all asset classes driven by the coronavirus (COVID-19) pandemic.

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In June, AM Best said it was maintaining its market segment outlook on the German life insurance market at negative. Key supporting factors include the narrowing of margins between investment income and average minimum guarantees due to lower investment yields, the slow runoff of back books of business and the negative impact on earnings from the need to increase contributions to the Zinszusatzreserve.

The Best’s Market Segment Report, titled Market Segment Outlook: Germany Life, noted that these negative factors are partly moderated by the proactive response to the low interest rate environment, with insurers reducing guarantees and increasing the proportion of hybrid and unit-linked products in their portfolios, and advances in technological and digital capabilities supporting cost reduction.

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Also in June this year, AM Best said that the rating agency was maintaining a stable market segment outlook on the Spanish non-life insurance market. Key supporting factors include the market’s resilient performance against a backdrop of political turbulence and slowing economic growth, strong technical profitability and solvency metrics and conservative investment portfolios that are able to withstand increased financial market volatility.

The Best’s Market Segment Report, titled Market Segment Outlook: Spain Non-Life, noted that these supporting factors are partly offset by an expectation of lower premium volumes due to pressure on gross domestic product driven by the coronavirus (COVID-19) pandemic, as well as the persistent low interest rate environment.

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AM Best assigned a negative market segment outlook to the Spanish life insurance market in June with the publication of the Best’s Market Segment Report, titled, Market Segment Outlook: Spain Life. Key supporting factors include AM Best’s expectation of a negative impact on earnings and solvency metrics due to the financial market volatility and global recession driven by the coronavirus (COVID-19) pandemic, a reduced demand for savings products and an increased risk of corporate bond default due to the deteriorating economic conditions.

The Market Segment Outlook: Spain Life report noted that these negative factors are partly moderated by strong market fundamentals going into the COVID-19 crisis, including robust profitability and strong levels of capitalisation and liquidity. In addition, assets and liabilities are generally closely matched, reducing Spanish life insurers’ sensitivity to interest rate movements

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The latest country report to be published by AM Best is the Best’s Market Segment Report, Market Segment Outlook: Germany Non-Life in which AM Best maintained a stable market segment outlook for the German non-life insurance market. Key supporting factors include the expectation that healthy technical profitability will be maintained. In addition, AM Best believes the sector’s conservative investment portfolios should limit exposure to COVID-19-driven financial market volatility.

The new Best’s Market Segment Report, Market Segment Outlook: Germany Non-Life, notes that these factors are partly moderated by likely lower premium volumes, due to the economic slowdown driven by the COVID-19 pandemic. Other offsetting factors include the persistent low interest rate environment and possible underwriting earnings volatility due to exposure to catastrophe losses.

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