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Fitch Revises Italian Insurance Sector Outlook to Stable
August 12, 2014 / 8:07 AM / 3 years ago

Fitch Revises Italian Insurance Sector Outlook to Stable

(The following statement was released by the rating agency) LONDON, August 12 (Fitch) Fitch Ratings has revised the outlook on the Italian insurance market to stable from negative following stronger-than-expected 1H14 results from Italian insurers. The outlook change also reflects Fitch's expectations that insurers' profit and capital adequacy will be resilient amid the Italian recession. The outlook underlines Fitch's view over the next 12-18 months of the entire Italian insurance market rather than just the companies within the sector that we rate. The outlook revision also reflects reduced credit risk on Italian insurers' balance sheet following the revision of the Outlook of Italy in April 2014 to Stable from Negative. The ratings of Italian insurers are heavily linked to the rating of Italy due to their large holdings of Italian government debt. Hence, the credit quality of sovereign debt is key to Italian insurers' financial strength. Non-life underwriting performance is strong despite falling premium income as insurers are benefitting from favourable claims experience. Fitch believes that non-life profitability will weaken, as pricing conditions continue to soften and claims costs increase. However, these negative effects are likely to be partially offset by what Fitch expects to be generally stable claims frequency in 2H14 and only a marginal increase in claims frequency 2015, due to the Italian recession. Life premiums are on the rise which, together with falling interest rates on Italian bonds, is boosting net profitability. Life sales are volatile, but should achieve single-digit growth in 2014 before gradually slowing in 2015, in Fitch's opinion. Likewise, net inflows are expected to level out in 2H14 and 2015 after having increased over the past 18 months. Fitch expects lapse rates to remain stable. Life profitability is much harder to predict, given the volatility in the market value of Italian bonds. This in turn creates volatility in reported profits and new business values because a significant proportion of changes in bond values flow through into reported profit. Italian life insurers are exposed to credit and interest rate risks through their traditional with-profits business, known as segregated accounts ("gestioni separate"). However, the current yield on assets is more than sufficient to cover guarantees and Fitch expects this trend to continue, reflecting the lower guarantees on new business and the running-down of older business with higher guarantees. Contacts: Federico Faccio Senior Director +44 20 3530 1394 Fitch Ratings Limited 30 North Colonnade London E14 5GN Clara Hughes Senior Director +44 20 3530 1249 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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