AM Best turns negative on the French life and non-life sectors

AM Best returned negative its outlook on the French segments of life and non-life insurance.

The rating agency said the two faced challenges, citing uncertain economic conditions, increased volatility, geopolitical tensions and inflation relative to the non-life sector, as well as low interest rates and economic headwinds compared to its life counterpart. The results have just been published in the firm’s journal Best Market Segment Report.

These factors, said AM Best, are likely to put pressure on the profitability of both in the best year. However, he also said insurers should be able to weather these challenges and hinted that ratings could be revised to “stable”.

AM Best wrote: “Premium growth in the French non-life insurance segment has always been closely correlated with the state of the economy. The International Monetary Fund (IMF) forecasts an increase in gross domestic product (GDP) of 3.5% for 2022, which should lead to a similar increase in premium volumes for insurers. However, the country’s growth remains subject to strong uncertainties.

He added: “In particular, the threat of additional inflation and further supply chain disruptions following Russia’s invasion of Ukraine and international sanctions imposed on Russia could undermine economic recovery. and thus reduce the growth prospects of insurers. The potential emergence of new variants of COVID-19 is also a source of uncertainty.

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On the life side, AM Best wrote: “While the life insurance segment has recovered in 2021, benefiting from its good and entrenched position in the market, the decline in premiums from the previous year demonstrates the vulnerability of its revenues to deteriorations in economic conditions and consumer sentiment.”

He added: “Although the French economy is expected to grow in 2022, forecasts for gross domestic product (GDP) have recently been revised downwards by the International Monetary Fund (IMF). Current geopolitical tensions, including the conflict in Ukraine and the international sanctions imposed on Russia, have a negative impact on the economic prospects in France as well as in other countries.

He continues: “Equity markets are expected to remain volatile and supply chain disruptions as well as rising energy prices could continue to drive up inflation rates. AM Best believes that deteriorating economic conditions could lead to a further decline in life insurance premiums in 2022, especially if consumers once again favor more liquid investments.

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