The rating agency considers that the sector's robust financial and operational stability is helping to offset higher inflation, higher interest rates, and volatility in capital markets.
S&P assesses industry risk for Czechia's P/C sector as moderately low. It is based on the market's track record of strong technical profitability and stable development, which affords it one of the strongest ROEs and underwriting performances in Europe. This is further supported by resilient capitalization, generally comfortable reserving, and robust reinsurance protection. The agency expects the market to continue to benefit from profitable growth given still-solid household balance sheets and the intensified execution of Czechia's 2030 development strategy.
The experts note that the Czech P/C market in 2021 and 2022 had one of the strongest and most stable performances of insurance markets in Europe. Its technical profitability remains above that of most other European countries despite the normalized frequency of obligatory motor insurance in 2022. Its 2022 performance was supported by still very favorable underwriting results, where the sector's full-year 2022 combined ratio is expected to be about 93%. This figure already largely includes the adverse effect of motor frequency normalization. The non-motor insurance segments continued to display robust underwriting performance.
In the report on the Czech life market, the agency emphasized that the market enjoys one of the best operating performances in Europe as it represents favorable business mix with high proportion of capital-light risk, and disability and unit-linked products.
S&P's assessment of the Czech life insurance market reflects the sector's long track record of strong and stable profitability, supported by disciplined underwriting practices and relatively limited asset risks. It is also a small market compared globally with reasonably high entry barriers. The institutional framework is fairly well developed and supports the sector's stable development. Overall, the agency considers industry risk to be similar to that of Belgium or Slovenia.
According to S&P, the technical profitability of Czech life insurance is among the strongest in Europe. Strong profitability mainly results from the prudent underwriting of life risk and disability policies and the favorable profitability of unit-linked policies. Despite the more volatile economic environment in 2020, higher mortality due to the pandemic in 2020-2021, the implementation of tax on life insurance reserves in 2020-2021 (which due to the realization of investments also lifted 2021 life ROA), and from mid-2021 also the gradual increase in Czech interest rates, the sector remained resilient with very strong profitability. Life ROA was about 3% in 2020 and in 2021. With the performance in the first three quarters of 2022 also remaining resilient, the rating agency expects that the full-year results will be as strong as in the past few years, the report said.