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FOR IMMEDIATE RELEASE
LONDON - FEBRUARY 23, 2017 08:29 AM (EST)
Italy’s volatile financial and political environment will pose challenges for the domestic insurance sector in 2017, principally due to the potential impact on investment portfolios, according to A.M. Best.
In a new briefing, titled, “Political Instability and Financial Volatility Remain Key Headwinds for Italian Insurers,” A.M. Best states that political and financial market uncertainty has implications for Italy’s insurance sector, principally due its exposure to the country’s government bonds. The research states Italy faces substantial headwinds, as recently appointed Prime Minister Paolo Gentiloni embarks upon the daunting task of stabilising the country’s fragile banking sector as concerns continue regarding non-performing loans. Italy’s economy is facing an environment of low growth and stagnant productivity, as well as increasing debt levels.
Alvise Argenton, financial analyst, explained: “Domestic insurers use Italian sovereign debt to back local liabilities, and as a whole, the sector is well-matched so that the value of assets and liabilities move in tandem. However, significant exposure to this asset class means that balance sheets are prone to potential volatility as any sudden increase in the yields of Italian bonds will directly impact investments and could weaken the capital base of insurers.”
Despite the difficult operating environment, Italy’s insurers have posted good underwriting performances. Ghislain Le Cam, associate director of analytics, added: “Results have been helped by the actions taken by Italian insurers to de-risk their life portfolios, principally by reducing the average guarantees to policyholders to offset the impact of the prevailing low interest rate environment.”
With difficult operating conditions likely to remain, A.M. Best is focused on how companies are managing their investment portfolios, as well as the appropriateness of risk management measures in place. Yvette Essen, director of research and author of the briefing, said: “Robust enterprise risk management, including monitoring of solvency positions, stress testing and reverse stress testing, is fundamental if insurers are to withstand the political and economic instability prevailing in Italy.”
As heightened levels of political and economic uncertainty are already factored into current ratings, A.M. Best does not expect to take any rating actions on Italy’s insurers in the near term. However, it will continue to monitor the exposure of domestic insurers’ balance sheet strength to investment market volatility and scrutinise the measures they have in place to navigate this challenging environment.
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=258893 .
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.