Global credit ratings agency AM Best has affirmed its negative outlook on France’s non-life insurance sector, citing modest real premium growth, persistent inflationary pressures, and rising volatility from social unrest and climate-related risks.
Modest Premium Growth Amid Weak Economic Outlook
The agency expects non-life premium income in France to grow in 2024, but at a modest pace when adjusted for inflation. Historically, non-life insurance growth in France has closely followed GDP trends.With Banque de France forecasting real GDP growth of just 0.8% in 2024, the economic environment remains challenging. High inflation and rising interest rates have dampened household spending power, limiting demand for insurance products.
Inflation Continues to Pressure Profitability
Claims inflation remains a key challenge, driven by rising costs in motor and liability lines. Increases in spare parts prices and bodily injury claims have significantly contributed to higher claim expenses.Despite strong market competition, insurers are expected to continue adjusting premium rates in 2024 to offset the erosion in technical results caused by inflation.Insurers are expected to adjust their premium rates going forward to counterbalance the inflation-linked deterioration in technical results.
Investment Returns to Support Earnings
While underwriting performance remains under pressure, investment returns are expected to improve in 2024. Higher yields on fixed-income portfolios will provide a boost to profitability, offering some relief to insurers.
Climate and Social Risks Add Volatility
The increasing frequency and severity of natural catastrophes due to climate change are adding to technical volatility. Although France has a state-backed natural disaster scheme managed by Caisse Centrale de Réassurance (CCR), the rising cost and unpredictability of events still impact insurers’ risk exposure.
Social unrest and man-made risks are also contributing to uncertainty in the operating environment.
Outlook Remains Negative Amid Structural Challenges
AM Best concludes that the non-life segment will continue to face headwinds in the coming year, including
- Modest real premium growth
- Ongoing claims inflation
- High competitive pressures
- Elevated volatility from climate and social risks
Profitability is expected to remain constrained as insurers balance rate increases with market share preservation.The agency noted that the outlook could be revised to stable if claims inflation eases, premium growth strengthens, and economic conditions improve.
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