The French insurance sector looks set for greater ratings stability through 2014 but some downside risks remain, according to a new report by S&P.
"Low industry and country risk for both life and property/casualty (P/C) in the French markets, which compares favourably with those in most other European markets, supports our view about the sector's stability", said S&P's credit analyst Gwenaelle Gibert.
The report also suggests stability in French P/C insurers' underwriting earnings, underpinned by good reserving. In addition, S&P believes the market boasts strong balance sheet liquidity. It also notes that capital adequacy has been improving with a pickup in earnings over the past year.
However, the ratings on French insurers remain exposed to some downside risks, such as the sensitivity of capital adequacy to investment market conditions and a potential narrowing in earnings capacity due to stiff competition, said S&P's credit analyst Merryleas Rousseau.
Despite an improvement during 2012, capital adequacy generally remains a ratings weakness for French insurers and is subject to growing asset risks. Furthermore, the market remains highly competitive and this is likely to constrain the potential for strong underwriting margins, said S&P.
In addition a number of regulatory initiatives are likely to gradually reshape investment practices, product offerings and the competitive landscape for both P/C and life businesses at French insurers, which could weigh on earnings potential, it added.
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