London : The Italian non-life insurance market faces changes as the sector is subject to new legislation and industry consolidation, while the country’s ongoing economic challenges constraindemand for coverage, according to a new report from A.M. Best Co.

Insurers are focusing on achieving technical profitability after some challenging years and an increasingly volatile investment environment. The premium rating environment is improving in 2012, and the market is expected to show an overall underwriting profit in 2013.

The report, “Italy’s Non-Life Insurance Sector Faces Shifting Landscape”, notes the Italian non-life insurance market returned to growth in 2011, with premium income rising 2.1% to EUR 36.4 billion. Sam Dobbyn, associate director, analytics, said: “The motor segment, which accounted for 57% of non-life premiums in 2011, was the key contributor to renewed growth for the non-life sector, as premiums for motor third-party liability and motor physical damage increased. Insurers have been attempting to increase prices in 2012, although to a lesser extent than in previous years.”

However, the Italian non-life market is likely to face a number of challenges, including recent legislative changes and the impact of the current Eurozone crisis. Italy’s weak economy will continue to result in lower household spending and cuts in government expenditures. The economy returned to modest growth in 2010 and 2011, although uncertainties over Italy’s sovereign debt remain, with the Eurozone crisis prompting forecasts that Italy’s gross domestic product will decline by 1.9% in 2012 and the country’s unemployment rate will increase to 9.5%.

Arianna Brina, associate financial analyst, said: “The insurance sector was exposed to high levels of suspected fraud and claims even before Italy’s economic downturn, and these continue to impact loss ratios.

However, the recently passed law Cresci Italia (Grow Italy) aims to help reduce fraud, as well as increase transparency and competition in the insurance industry.”

The report also examines the potential consequences of a successful completion to the proposed four-way merger involving Unipol, Fondiaria-Sai, Premafin and Milano Assicurazioni to create a rival to Assicurazioni Generali. Yvette Essen, report author and director of industry research, Europe and emerging markets, said: “With three major players set to dominate the market after the merger, with Allianz remaining the third-largest non-life insurer, the insurance industry is looking for stronger governance from a new insurance regulatory body to protect the interests of smaller participants. The three biggest insurers would control almost 60% of the non-life market, widening the gap between the key players and the smaller companies.”