Life insurers in Italy saw strong sales of unit-linked plans in the first half of 2020, marking a shift from previous economic crises when policyholders poured money into savings accounts, Fitch said.
Unit-linked plans, which combine traditional insurance coverage and investment exposure, represented over half of life net inflows during the first quarter of the year and about a third during the second quarter, according to a copy of the Fitch report shared Friday with Fastinform.
By comparison, unit-linked plans represented about a tenth of inflows during the first quarter of 2019 and about one-quarter of second-quarter inflows during the same year.
Unit-linked plans work similarly to mutual funds by gathering investments from a wide pool of customers, then putting that money into equity and debt instruments. Italian life insurance customers could have been more drawn to unit-linked plans than in past crises due to most financial markets’ tumultuous but ultimately quicker-than-normal recoveries.
The New York-based credit ratings agency said it expects unit-linked sales to remain strong during the second half of 2020 despite any ongoing volatility in financial markets.
The surge in unit-linked sales was ultimately not enough to stop overall life net inflows from falling 15% during the first half of the year, Fitch said.
The ratings agency added that investors should be mindful of Italian life insurers’ large asset allocation to Italian debt.
“New business volumes, profitability and capital would be negatively affected in the event of higher sovereign spreads and, to a lesser extent, lower equity markets,” Fitch said.
Italian life insurers have overall shifted toward capital-light products in response to persistently low interest rates, Fitch said, adding that insurers could face demand for traditional savings products with guarantees due to the ongoing economic crisis.
Poste Italiene, which owns Italy’s largest life insurer, Poste Vita, reported a 26% decline in profit to EUR 239 million ($283 million) during the first half of 2020. The group attributed much of its losses to coronavirus-related lockdowns, which swept Italy before the rest of Europe.
Poste Vita’s Solvency II ratio, a European Union-mandated capital requirement based on risk, stood at 216% at the end of June — higher than its goal of 200%.
Fitch said that Solvency II ratios had “decreased significantly” across the board for Italian life insurers due to financial market turmoil.