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Italian Auto Insurers’ Shares Could Gain from Price Increases

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Shares in Italy’s top motor insurers could become more attractive this year because of the likely success of tariff [premium] increases in a market where rivalry from online and bank sales is still weak. Fund managers plan to increase their investments in the main non-life players such as Fondiaria-SAI SpA and Unipol as tariff increases, which started last year flow into results this year and with a full impact in 2011.

“We had been out of this sector for a very long time and went in two months ago. There is a recovery in the sector in the combined ratio (costs and claims as a percentage of premiums), which has been devastated, and in prices,” said Azimut fund manager Stefano Mach Gelatti.

Italian insurer shares have underperformed the rest of the European sector over the last year. The DJ STOXX European insurance index is up about 21 percent while Unipol is down nearly 18 percent and Fondiaria-SAI is flat.

A Milan analyst said Fondiaria-SAI’s tariff hikes will support its results in 2010. It can beat its target of boosting net profit by 60 percent a year to €370 million [$504 million] in 2011, from 2008’s €91 million [$124 million], he said.

“It is plausible that customers look for cheaper insurance. This resistance will be overcome. The targets are conservative and not at risk. If all goes well and they don’t lose customers, they will beat the targets,” he said.

Fondiaria-SAI expects to get a €250 million [$340.5 million] boost from higher tariffs over its 2009-2011 business plan period. The company relies for more than one third of premium income on auto. Unipol’s non-life including auto represented 42 percent of total premiums in nine months of 2009.

Germany’s Allianz is the third-largest player in Italy’s auto insurance industry, which, according to the Ania industry association, had a market volume of €21 billion [$2.86 billion] in 2008.

A second Italian fund manager said Fondiaria-SAI and Unipol “are cheap. But before buying I want to see a turnaround in profit. When this happens they will become interesting.” He said there can be news on this in March.

According to Thomson Reuters estimates, Fondiaria-SAI has a price-to-book ratio of 0.65 and Unipol 0.59, compared with Allianz at 1.06.

DOMINANT SHARE The dominance of major companies and lack of alternative suppliers means that only 10 percent of customers in Italy switch to another insurer each year, although that figure is up from only 8 percent in previous years. This compares with the 20-30 percent turnover average across Europe, analysts say.

“Auto insurance in Italy is very concentrated. The first four groups have just over 65 percent of the premium income. Another 30 groups represent the remaining 35 percent,” Deloitte Consulting director Romano Sacchi said.

Online sales have only a little above 4.5 percent market share in Italy because of poor personal computer and internet penetration in the country, he said.

The bancassurance channel — insurance sold via banks — is “saturated” for life products, Sacchi said, adding that non-life could rise to 5 percent in the next 3-5 years, only a modest rise from today’s 2.5-3 percent share.

“Customers don’t have much alternative. The only thing they can do is get a quote from an online service or shop around. Online is little developed, and people of 50 or 60 years prefer to go to (traditional) companies,” said a second Milan-based analyst.

Italy is likely to lead the way on the tariff increases. “Insurance companies are pushing through price increases in most European markets. You see it in France and to some extent in Germany,” said Keefe, Bruyette & Woods analyst Ralph Hebgen.

“Italian companies are not isolated in increasing tariffs, but the order of magnitude seems most pronounced in Italy,” he said, citing anecdotal evidence of 5-7 percent hikes in Italy.

Generali has said that it sees Italian auto premium volumes recovering in coming years on the back of tariff hikes, while competition in other markets is strong.

(Editing by Sitaraman Shankar)


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