France’s life
insurance industry recovered in 2009, recording a 12.8% increase in
gross premium income compared with 2008 to €138.3bn ($179bn). But
despite this, the outlook for France’s life industry is negative,
believes rating agency Moody’s Investor Services analyst and
assistant vice-president Benjamin Serra.
Serra noted that while
France’s economy coped relatively well during the financial crisis,
it is entering the post-crisis era with weak momentum. He explained
that consumer confidence deteriorated during 2010, which together
with increasing savings makes acceleration of economic activity
uncertain.
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Moody’s forecasts France’s
GDP growth at 1.3% in 2010 and 1.6% in 2011, and forecasts that
unemployment will end 2010 at 9.5% and fall marginally to 9.4% by
the end of 2011.
Increased savings benefited
life insurers during 2010 by prompting a shift of savings from
short-term banking products to life products, said
Serra.
However, be added that most
of the savings transfer is over and that he expects the life
industry’s growth will slow. Recent data indicates that this is
indeed happening, he added.
Serra continued that because
French insurers mostly invest in fixed-income securities on which
interest rates have decreased sharply since the beginning of 2010,
reported investment returns are likely to be lower in 2010 than in
2009.
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By GlobalData“Furthermore, given the large
amount of inflows invested recently at low yields, we believe that
the financial incomes of life insurers will remain low for some
time,” said Serra.
What French insurers do not
want is a sudden rise in interest rates. This, he explained, would
widen the gap between what life policies would be able to offer and
what banking products would be able to offer after a rate
spike.
“The impact of a sudden rise
in rates [on insurers] would be particularly severe,” he
stressed.
He explained that this is
because returns granted to policyholders have been significantly
reduced recently and that the large new inflows attracted have been
invested at low yields. This would contribute to widen the gap
between what life insurance policies would be able to offer and
what banking products would be able to offer after a spike in
rates.
However, Serra added that
many insurers are noting this risk and have been purchasing hedges
against an increase in rates for some time.
Unit-linked outlook
gloomy
Life insurers can also not
look to unit-linked product sales providing any relief while risk
aversion among consumers remains high.
“The experience of the last
equity market crisis [2001-2002] demonstrated that this could take
up to three or four years from the inception of equity market
turmoil, subject to improvements in the financial markets,” said
Serra.
This represents an additional
drag on insurers’ profitability as unit-linked products provide
higher margins than traditional contracts, he added.
Also weighing on French life
insurers, said Serra, is the government’s decision to increase the
legal minimum retirement age to 62 years (from 60) and the age for
receiving the full state pension to 67 (from 65) as from July
2011.
Moody’s analyst Nadine Abaza
noted that insurers most impacted are specialists in incapacity and
disability insurance and, significantly, most provident insurance
provided to provident associations. In 2009, provident insurance
premiums totalled €16.7bn.
Excluding bancassurance players, the major provident
insurance suppliers are CNP, Axa, Allianz France with a combined
market share of 45%, he added.
