According to the rating agency's release, a small increase in business is to be expected as more customers choose cover for natural catastrophe (flood/earthquake) losses, attracted by premiums that are now exempt from Italy's 22.5% insurance premium tax and partly deductible from taxable income (19% of the premium is tax deductible). The extra business will add to insurers' earnings and business diversification. This will partially offset weak profitability in the motor insurance market, which forms the bulk of their business.
However, the impact is likely to be small, believes Fitch. Italy's national association of insurers expects the number of people buying cover to grow by 20% a year over the next five years, but natural catastrophe premiums represent less than 1% of the home insurance market and the proportion would still be very low even with that level of growth. Moreover, we expect insurers to cede more than half of the extra risk to reinsurers to shield themselves from large losses, meaning that much of the earnings boost will be spent on reinsurance. Insured losses from recent natural catastrophes in Italy have been split about 60/40 between reinsurers and primary insurers.
The Italian government introduced the incentives for insurance policies bought or renewed on or after 1 January 2018 to encourage people to insure their homes against floods and earthquakes. This followed several years of debate, the near-introduction of mandatory insurance in 2012 and significant uninsured earthquake losses in 2016.
Only 2% of Italian homes have flood/earthquake insurance. People whose properties are damaged or destroyed cannot rely on the state for near-term financial support as state funds typically focus on rebuilding properties, which can take several years.
Our outlook for the Italian non-life insurance sector is stable as we expect weak profitability in motor insurance to be offset by growth in other business lines.
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