Best's Review


European Insurers
AM Best: Inflation, Energy Prices Bring Uncertainty to France Non-Life Market

A good level of diversification and protection against natural catastrophe losses are moderating factors for the segment.
  • June 2022

Editor's Note: The following is an excerpt from the Best's Market Segment Report: Market Segment Outlook: France Non-Life Insurance. Visit to access the full report.

AM Best is revising its outlook to Negative from Stable for the French non-life insurance segment.

Factors that support the Negative outlook in 2022 include: growth prospects reduced by economic uncertainty; rising inflation and claims frequency cause underwriting challenges; uncertainty remains for COVID-19 business interruption claims; and low interest rates and investment volatility pressure non-technical earnings.

Factors moderating these negatives include: good level of diversification and protection against natural catastrophe losses.

Related: Best’s Ranking: Largest 30 European Insurers – 2022 Edition

Growth Prospects Reduced by Economic Uncertainty

Premium growth in the French non-life insurance segment has historically been closely correlated with the state of the economy. The International Monetary Fund (IMF) forecasts an increase in gross domestic product (GDP) of 3.5% for 2022, which should lead to a similar increase in insurers' premium volumes. However, the country's growth remains subject to significant uncertainty.

In particular, the threat of further inflation and additional supply chain disruptions following Russia's invasion of Ukraine and the international sanctions imposed on Russia could undermine the economic recovery and so reduce growth prospects for insurers. The potential emergence of new COVID-19 variants is also a source of uncertainty.

Even though the French economy has a relatively lower dependence on Russia and Ukraine than some of its European neighbors, the country has been significantly affected by the recent surge in energy prices.

Temporary government measures have been put in place to limit the impact of rising energy prices on the French economy. However, energy prices remain[ed] a sensitive topic [during] the presidential election, adding potential pressure on the country's growth prospects.

AM Best notes that a surging inflation, amid supply chain disruptions, could reduce the segment's growth prospects for 2022.

Related: Market Segment Report: Market Segment Outlook: France Non-Life Insurance

Rising Inflation and Claims Frequency Cause Underwriting Challenges

The French non-life segment remains competitive, and technical performance is typically modestly profitable. However, profitability has trended up in recent years, partly due to lower claims frequency stemming from reduced activity due to the lockdowns and other government measures taken in response to the COVID-19 pandemic. AM Best expects the positive momentum to reverse in 2022.

Claim patterns for motor and personal property have generally been reverting back to pre-pandemic levels, as COVID-19 related restrictions have been lifted. Therefore, AM Best expects an increase in claims in 2022 in these lines back to the pre-pandemic levels.

In addition, rising inflation and disruptions in supply chains are likely to drive an overall increase in claims costs, for motor physical damage and other lines, due to higher labor and repair prices. While French non-life insurers have the flexibility to manage temporary increases in prices, AM Best believes that extended periods of higher inflation could become a challenge for them, creating further pressure on their profitability.

AM Best expects that insurers will try to increase premium rates for the motor segment in 2022, in an attempt to offset the effects of high claims costs to maintain their profitability. However, an extended period of high inflation could become a challenge for them, requiring repeated increases in premium rates to keep up, which would be difficult to achieve given the competitive nature of the French motor market.

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