OREANDA-NEWS. Fitch Ratings says in a new report that its rating and sector outlooks for the Italian insurance market remain stable, reflecting Fitch's expectations that insurers' growth and profitability will be resilient. This is despite softening prices in motor, high concentration risk in life insurers' investment portfolios and regulatory pressures to enhance transparency and further boost competition.

Italian insurers hold significant amounts of government and corporate debt in their investment portfolios, largely backing insurance liabilities. This large asset concentration makes their ratings strongly linked, and sensitive, to the Italian sovereign. A change to Italy's rating or Outlook (BBB+/Stable) could trigger a change in insurers' ratings or Outlooks.

Fitch expects Italian insurers to fare well under Solvency II. However, given their high exposure to government bonds, Italian insurers are likely to have the largest increase in capital charges if European regulators remove the zero risk weighting for sovereign debt under Solvency II's standard formula (see "Fitch - Italian Insurers Most Exposed to Sovereign Capital Charge", published on 23 November 2015 and available at www.fitchratings.com).

Motor rates continue to be soft, while non-motor rates are seeing a firmer increase. This trend is likely to continue in 2016, even though motor rates may start to pick up as claims frequency increases. Fitch expects non-life underwriting performance to remain fairly strong in 2016 despite falling premium income, as insurers benefit from improving results in non-motor lines.

Rising life premiums, together with increasing values of Italian bonds and positive net collections, are boosting net profitability. Sales are driven by single premiums, which can lead to volatile results, but Fitch believes life premiums are likely to continue growing in 2016, albeit more slowly than in 2015.