S&P: Otlk Neg For Italian Insurers, but Mkt Improving.

Business Editors

PARIS--(BUSINESS WIRE)--Standard & Poor's

Jan. 9, 2003--Following a review of the Italian insurance market, Standard & Poor's Ratings Services said today that the ratings outlook for the market is negative, reflecting an expected downward trend in insurer

"Despite improvements in various lines of business over the past year, some ratings remain pressured and downgrades are therefore likely to outweigh upgrades," said Standard & Poor's credit analyst Laura Santori. "Nevertheless, negative rating actions are likely to be few in number and largely due to issues that do not necessarily reflect the dominant trends in the market."

Notably, in the non-life market, better technical results for motor third-party liability, and improvements in some minor lines such as general liability, marine, and aviation and transport, have resulted in overall improved operating performance.

The ongoing profitability of the market remains pressured by political intervention, however. The Italian government recently imposed a new tax law that limits the level at which technical reserves are deductible and will inevitably result in increased costs for insurers.

Meanwhile, the motor market--which between 2000 and 2001 was subjected to a damaging tariff freeze--has recently been threatened by yet more government intervention, with a proposal to stop the pricing of motor insurance based on differentiation by geographical location of the insured. "Although this proposal has not been implemented, it is clear that the Italian insurance industry is still vulnerable to government intervention," said Ms. Santori.

For life insurance, profitability has remained good, although lower than in previous years due to the downturn in financial markets. Nevertheless, there was strong premium growth of 16.4% in 2001, largely due to an upturn in the growth of traditional products (by 21.2% to EUR19 billion) and capitalization products (by 112% to EUR3 billion) in the Italian market.

"Growth in traditional and capitalization products has been sparked by poor investment market returns creating demand among policyholders for guarantees on their capital assured. With such products having traditionally higher margins, earnings on life portfolios are expected to recover further during 2003," said Ms. Santori.

The potential for future growth in Italy is significantly higher than in other European markets. The largest composite groups are setting up impressive distribution networks and transforming themselves into financial services providers, increasing the potential for cross selling and boosting customer loyalty. Furthermore, new opportunities are arising. "There is a pressing need for private pensions due to the growing uncertainty related to the public pension system, and although private pension plans have been slow to develop, further revisions of the legislation governing pensions are expected to help the market take off," said Ms. Santori.

Notably, individual pension plans (Fondo di Previdenza Individuale; FPI) began to take off in early 2002, following government clarification over the favorable tax treatment applied to FPI policies, and growth is expected to continue into 2003.

ANALYST E-MAIL ADDRESSES

laura_santori@standardandpoors.com

yann_lepallec@standardandpoors.com

InsuranceInteractive_Europe@standardandpoors.com

Copyright 2003, Standard & Poor's Ratings Services