AMB Country Risk Report
August 18, 2015
Our Insight, Your Advantage.
Italy
Country Risk Tier
• The Country Risk Tier (CRT) reflects A.M. best’s assessment
of three categories of risk: Economic, Political and Financial
System Risk.
CRT-2
• Italy, a CRT-2 country, is a founding member of the European
Union (EU) and of the Eurozone.
• Following 3 years of economic contraction (2012-2014),
Italy’s economy is expected to return to growth in 2015 at a
rate of 0.5%. The mild recovery is being driven by a weaker
euro, lower commodity prices, and easy monetary policy that
allows for refinancing. While positive, concerns remain over
geopolitical situations in and around the Eurozone that could
derail the fragile economic recovery.
Economic Risk
Moderate
Low
High
Very Low
Very High
• The majority of countries below are categorized as CRT-1
and CRT-2. The notable exceptions are the Eastern European
countries of Bosnia and Herzegovina, Belarus and the Ukraine.
Political Risk
Moderate
Low
High
Iceland
Greenland
Finland
Iceland
Greenland
Sweden
Very Low
Finland
Sweden
Very High
Norway
Norway
Estonia
Financial System Risk
Isle of Man
Isle of Man
Russia
Latvia
Denmark
Denmark
Latvia
Lithuania
Low
High
Belarus
Ireland
United
Kingdom
Netherlands
United
Germany
Kingdom
Belgium
Guernsey
Very Low
Liechtenstein
Guernsey
Luxembourg
Jersey
Very High
Switzerland
France
San Marino
Croatia
France
Andorra
Andorra
Portugal
Azores
Market Outlooks
Copyright © 2015 by A.M. Best Company, Inc.
as
Dominican
Monaco
Gibraltar
Canary
Islands
Montenegro
Malta
Tunisia
Turkey
Greece
Cyprus
Malta
Syria
Cyprus
Lebanon
Iraq
Israel
Morocco
Algeria
Azerbaija
Turkey
CRT 1 2 3 4 5
Canary
Islands
Georgia
Armenia
Albania
Monaco
Tunisia
Russia
Bulgaria
Macedonia
Greece
Gibraltar
Morocco
Bosnia & Serbia
Herzegovina
Italy
Albania
Spain
Portugal
Azores
For information on companies followed
Macedonia
Romania
Croatia
Bulgaria
Republic of
Moldova
Hungary
Slovenia
Bosnia & Serbia
Herzegovina San Marino
Italy
Ukraine
Republic of
Switzerland
Romania
Montenegro
Spain
Czech
Ukraine
Republic
Slovakia
Moldova
Austria
Hungary
Slovenia
Poland
Germany
CzechBelgium
Republic
Slovakia
Liechtenstein
Luxembourg
Austria
Jersey
Belarus
Poland
Netherlands
Russia
Lithuania
Moderate
Ireland
Estonia
Lebanon
Israel
Jordan
Libya
Algeria
Libya
Egypt
All rights reserved. No part of this report may be reproduced, stored inWestern
a retrieval system
or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.
Sahara
(Occupied by Morocco)
Western Sahara
(Occupied by Morocco)
Jordan
Kuwa
Bahrain
Egypt
Saudi
1 Arabia
Qat
AMB Country Risk Report
Italy
Regional Summary: Western Europe
Vital Statistics 2014
• Western Europe is a highly developed
and affluent region. The 28 countries of
the European Union (EU) accounted for
25% of world GDP in 2014. The EU is
facilitating a single European market with
standardized regulatory systems and free
movement of people, goods, services and
capital. The 17 EU members of the eurozone use the euro as their currency.
Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2013 - 2014)
USD bn
mil
USD
%
%
USD mil
USD mil
%
2147.95
60.0
35,823
-0.4
0.2
145,292
49,443
15.3
Regional Comparison
• Western Europe has been experiencing
a prolonged period of slow economic
growth, with the EU growing 1.4% in
2014. Growth is largely expected to
remain muted at 1.8% and 1.9% in 2015
and 2016 respectively. On-going concerns
over Greece’s economic and political
future have increased the potential
downside risks to growth and stability
throughout the European Union.
Country Risk Tier
CRT-2
CRT-1
CRT-1
CRT-2
CRT-1
CRT-1
Italy
France
Germany
Spain
Switzerland
United Kingdom
Source: IMF, Axco, Swiss Re and A.M. Best
• In March 2015 the European Central
Bank (ECB) launched a program of
Quantitative Easing, expected to last
through September 2016.The program
entails the purchase of 60 billion EUR of
assets monthly in an effort to boost growth,
encourage lending and increase inflation.
Economic Growth
Economic Risk: Low
• Italy is a large, modern economy that
supports one of the largest manufacturing
sectors in the world. However, industrial
investment, restructuring and labor
reforms are necessary to remain
competitive in Europe.
4
Real GDP
2
1
0
• Political instability, high debt, low
productivity and a large shadow economy
have been headwinds to economic
growth. In addition, unemployment
remains stubbornly high (12%) and the
country is prone to labor strikes.
• Easing credit conditions and an
improved outlook in the Eurozone should
help to support Italy’s growth.
CPI Inflation
3
%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
-1
-2
-3
-4
-5
-6
Source: IMF World Economic Outlook and A.M. Best
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AMB Country Risk Report
Italy
Political Risk: Moderate
Political Risk Summary
• Italy has a large and cumbersome
bureaucracy and an inefficient public
sector supporting a modern and advanced
business infrastructure.
Score 1 (best) to 5 (worst)
Italy
World Average
International Transactions
Policy
5
4
Legal System
• The government’s current agenda
focuses on the structural issues preventing
it from reaching full economic potential
including reforms in the labor market,
judicial system, public sector, and electoral
law. A proposed “Jobs Act” would promote
hiring and reduce employers tax burdens.
Monetary Policy
3
2
1
Regional Stability
Fiscal Policy
0
Social Stability
Business Environment
Government Stability
• Measures to reduce the deficit
face political challenges and doubts
surrounding sustainability. Political
infighting has halted much needed
reforms. Electoral reforms effective in
July 2016 may ease instability with the
transition to a two-party system.
Labor Flexibility
Source: A.M. Best
Financial System Risk: Moderate
GDP Per Capita and Population
for Selected Countries
• The Institute for the Supervision of
Insurance Companies took over regulation
of the insurance market in January 2013.
90
100,000
GDP Per Capita
• Italy is under pressure from the ECB and
EU to rein in its high government debt,
which surpassed 132% of GDP in 2014.
Population
90,000
80
80,000
• Italy’s stock exchange, Borsa Italia, is
large by global standards, but small relative
to its European neighbors. Italian banking
standards are adequate.
70
70,000
60
60,000
40
40,000
30
30,000
20
20,000
• The ECB’s Outright Monetary
Transaction program and quantitative
easing has stabilized the Italian sovereign
debt market over the past 3 years,
boosting investor confidence and greatly
reducing yields.
10
10,000
0
Millions
USD
50
50,000
Italy
France
Source: IMF and A.M. Best
Germany
Spain
Switzerland
United Kingdom
0
• Banks have made progress in
governance reforms and private capital
raising, but the Non-Performing Loans
ratio reached a record 16%.
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AMB Country Risk Report
Italy
GUIDE TO BEST’S COUnTry rISk TIErS
A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurer’s financial stability, strength and performance.
A.M. Best’s Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.
Country risk Tiers
Country risk Tier
Definition
CRT-1
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
CRT-3
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
CRT-4
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
CRT-5
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.
Country risk reports
A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a country’s Country
Risk Tier assignment. It is not intended to summarize A.M. Best’s opinion on any particular insurance market or the prospects for that market.
Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.
Category of risk
Definition
Economic Risk
The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an insurer.
A.M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.
Political Risk
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the government’s economic policies.
Financial System Risk
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industry’s level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.
Political risk Summary
To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.
Category
Definition
International Transactions
Policy
Measures the effectiveness of the exchange rate regime and currency management.
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Measures the ability of a country to effectively implement fiscal policy.
Business Environment
Measures the overall quality of the business environment and ease of doing business.
Labor Flexibility
Measures the flexibility of the labor market, including the company’s ability to hire and fire employees.
Government Stability
Measures the degree of stability in a government.
Social Stability
Measures the degree of social stability, including human development and political rights.
Regional Stability
Measures the degree of stability in the region.
Legal System
Measures the transparency and level of corruption in the legal system.
Country risk Tier Disclosure
A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Best’s Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Copyright © 2015 by A.M. Best Company, Inc.
Version 091714
Copyright © 2015 by A.M. Best Company, Inc.
All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.
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