Italian life insurance market in 2023: Fitch Outlook

The Italian life insurance sector’s policyholder surrender rates remain high but may have peaked and should not have a material impact on most insurers’ profitability, Fitch Ratings says.

Surrender rates increased sharply in late 2022 and early 2023 as the rapid rise in interest rates led some customers to cash in their old life insurance savings contracts and to seek new ones offering better returns, or to use the proceeds to help with living costs.

Insurers faced losing the profit they would have made on the surrendered policies had the contracts remained in force.

Increased Solvency II (S2) requirements to cover the risk of a surge in surrenders led to a capital shortfall at one company, Eurovita, and subsequent regulatory intervention.

Average Monthly Surrender Payouts

PeriodAverage monthly payout/prior-year reserve
20200.47%
20210.52%
20220.56%
March 20231.12%
June 20230.85%
Source: Fitch Ratings, ANIA

Recent data from ANIA, Italy’s national association of insurance companies, show that the sector’s average monthly surrender rate (surrender payouts/prior-year reserves) may have peaked in March at just over 1%.

This level is about 2x the monthly rate in most of 2020-2022 but it does not represent a significant stress for the sector, providing it is temporary.

Fitch expects surrender rates to gradually decrease in 2H2023 and into 2024 as the customer reaction to higher interest rates eases, and most insurers should suffer only a dent to their profitability.

Several Italian insurers’ S2 ratios have deteriorated due to increased S2 requirements to cover mass lapse risk amid higher interest rates, particularly for insurers using the S2 standard formula rather than an internal model for their calculations.

Italian life insurance market in 2023: Fitch Outlook

The deterioration has not affected ratings as the ratios remain strong relative to ratings, largely due to their high starting levels.

However, some insurers are considering mass lapse reinsurance or capital injections to strengthen their S2 positions.

We believe the rescue plan for Eurovita that was agreed in June has prevented any significant damage to consumer confidence in Italy’s insurance sector, which could have exacerbated rising surrender rates.

IVASS, the Italian insurance regulator, reached an agreement with five insurers and several distributing banks to save the company and transfer its contracts to a new entity, owned by the five insurers as equal shareholders.

Yana Keller   by Yana Keller