The continued stable outlook on the P&C sector reflects French insurers' ability to maintain price increases to support their profitability, says Moody's Investors Service in a new report. The change in the outlook on the Life sector to stable from negative reflects Moody's expectations of minimal weakening in market dynamics over the next 12-18 months.
The report, "French Insurance: P&C Starts to Feel the Pressure; Life Stabilises but Constraints Remain", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Overall, the economic outlook for France will remain challenging, with only very modest acceleration of GDP growth in 2014. In particular, a high unemployment rate and weak economic growth will continue to constrain insurers' revenues and profits. In addition, insurers may be asked for further contribution to fiscal consolidation efforts via either additional one-off taxes or a hardening of existing taxes.
Moody's expects that French P&C insurers will continue to raise prices, because of the increase in combined ratios in 2013 that followed the high level of weather-related claims. However, price increases will remain moderate, especially in the motor segment, and should barely offset the expected claims inflation. Furthermore, after four years of tariff increases, insurers' ability to further aggressively adjust prices will diminish due to a combination of (1) increased competition from bancassurers; (2) a weak economic environment; and (3) the passing of the Hamon law that fosters price competition.
Moody's says that the life insurance reform that was adopted at the end of 2013 will have little impact on the industry over the next 12-18 months, and the rating agency expects that market dynamics will stabilise somewhat. The maintenance of fiscal benefits as part of the reform, together with expectations of low remuneration for banking products in 2014 because of low inflation rates, will support the relative attractiveness of insurance products vis-à-vis other savings products, and will reduce the risk of increased volatility in net flows in 2014. Nonetheless, outflows will continue to rise slightly for both macro-economic and structural reasons, and net flows will remain weak.
Furthermore, Moody's says there is a lack of a catalyst for any rapid development of alternative sources of revenues and profits for life insurers, notably in the fields of health, protection and retirement.
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