OREANDA-NEWS. Fitch Ratings has revised its sector outlook for French non-life insurance to negative from stable. The outlook for the ratings of the French non-life insurance companies is stable, reflecting the proportion of company ratings on Stable Outlook.

Fitch expects that premium growth and profitability of French non-life insurers are likely to deteriorate in 2016. Fitch forecasts a normalised combined ratio of 102% in 2015 and 103% in 2016 and non-life premium income growing by 2.6% in 2015 and 1.6% in 2016.

Fitch expects tariffs to only marginally increase in 2016 after two years of strong price rises. Competition in both personal and commercial lines is intense and the rise of aggregators on the internet, supported by regulation changes that enable policyholders to cancel policies beyond the anniversary date (Hamon Law), are likely to squeeze margins and add to pricing pressure. Commercial lines are currently profitable in France, which attracts capacity and continues to intensify competition.

Weak economic growth and the increase in low-cost offers, which are more attractive to policyholders looking for less expensive and simpler insurance products have weakened premium growth. The growth in premium income has largely been driven by tariff changes since 2011, rather than by any increase in volumes of policies and guarantees. This is a trend that is gradually beginning to reverse.

In motor, underwriting profitability is under pressure as claims frequency and average claim severity continue to rise, particularly for bodily injury claims. Fitch believes that lower tariff increases, stiff competition and legislative changes will reduce the level of profitability achieved by French non-life insurers in 2016.

Fitch expects French non-life insurers to fare well under Solvency II. According to the latest study published by the Autorite de controle prudentiel (ACPR), non-life reserves under Solvency II will be lower on average than their book value and own funds will be higher than under Solvency I. French non-life insurers' capital position under Solvency I remains strong, supporting their ratings, although it is boosted by unrealised capital gains on fixed income investments, which reduces the quality of capital.