OREANDA-NEWS. February 04, 2015. Fitch Ratings says in a new report that Italian insurers' profit and capital adequacy are likely to be resilient amid challenging domestic operating conditions. This underpins the stable rating and sector outlooks.

The resilience is due to Fitch's expectations of positive underwriting results in non-life in 2015, despite softening prices in the dominant motor business. In addition, the reduction in minimum guaranteed returns to zero makes profits and capital of Italian life insurers less sensitive, albeit not immune, to changes in interest rates.

These factors continue to be offset by high concentration risk in life insurers' investment portfolios. Italian insurers hold significant amounts of government and corporate debt in their investment portfolios, largely backing insurance liabilities. Compounded with their exposure to the domestic economy, this means there is a strong link between their ratings and those of the Italian sovereign (BBB+/Stable). Any change to Italy's rating or Outlook could trigger a change in insurers' ratings or Outlooks.

Fitch expects Italian insurers' non-life premium income to remain under pressure in 2015 due to declining rates in the motor market and stiff competition in commercial lines. As a result, prospects for growth are subdued and non-life profitability will be weaker than in 2014. Nonetheless, Fitch expects the Italian non-life market to achieve technical profitability in 2015.

Fitch expects life regular premiums to show increases in the low single digits in 2015, and positive net inflows. The agency expects lapse rates to be stable, provided there are no financial market shocks.

Italian insurers' life earnings are sensitive to the effects of changes in interest rates and credit spreads. Fitch expects interest-rate risk to slowly decline, reflecting the lower guarantees on new business and the run-down of older business with higher guarantees. This ongoing de-risking is positive for insurers' ratings.