Decree on cat insurance policies finally issued in Italy

On 27 February 2025 the interministerial decree of the Minister of Economy and Finance and the Minister of Enterprise and Made in Italy (the "Interministerial Decree") expected to lay down further implementation and operational modalities on the obligation to take out insurance policies in relation to damage caused by natural disasters and catastrophic events (the "catastrophe insurance policy") has been published in the Official Journal of the Italian Republic.

As is well known, the obligation to take out the catastrophe insurance policy was introduced by the Budget Law 2024-2026 (i.e., Law of 30 December 2023, no. 213) which stated that this obligation is addressed to all companies with their registered office in Italy or with registered office abroad but with a permanent establishment in Italy required for registration in the company register in accordance with article 2188 of the Italian civil code, in relation to damage caused by natural disasters and catastrophic events to land, buildings, plant, machinery and industrial and commercial equipment, recorded in the balance sheet.

Originally, this obligation was expected to come into force on 31 December 2024. However, by virtue of the so-called Milleproroghe decree (i.e., legislative decree of 28 December 2006, no. 300) the entry into force has been postponed to 31 March 2025.

As for the content of the Interministerial Decree, the topics covered are listed below:

1. A precise definition of the calamitous and catastrophic events that must be covered by the policy

In accordance with the Interministerial Decree, it must be considered a catastrophic event:

-????????? flood, inundation and overflowing;

-????????? earthquake; and,

-????????? landslide.

1. The methods for determining and periodically adjusting premiums, also taking into account the principle of mutuality

The insurance premium is determined in proportion to the risk, also taking into account the location of the risk in the territory and the vulnerability of the insured assets (i.e., based on the hazard or risk maps of the territory which contain an indication of past catastrophic events that have occurred in a specific location), and adopting, where applicable, predictive models that take into due consideration the evolution over time of the probability of catastrophic events occurring and the vulnerability of the insured assets.

Premiums are updated periodically, also in consideration of the s.c., principle of mutuality.

1. the limits to the risk assumption capacity of insurance undertakings

For the purposes of fulfilling the obligation to take out catastrophe insurance policies, insurance undertakings authorized in Italy to operate within the scope of this Interministerial Decree shall define, with reference to the overall risks to be assumed with the insurance contracts, the risk appetite consistent with its overall solvency requirements, setting the relative risk tolerance limits.

The risk tolerance limits must be updated at least once a year and are defined with reference to the entire portfolio acquired on the risks defined above, taking into account the use of risk transfer mechanisms, including the transfer to SACE S.p.A.

Insurance undertakings that exceed the risk tolerance limit shall cease to assume additional risks throughout the national territory and must immediately report this event to IVASS and to third parties by publication on the company's website.

1. Extent of damage eligible for compensation from the insured party

For the band up to 30 million euros of insured sum, the catastrophe insurance policies may provide, if agreed by the parties, for a deductible, which remains the responsibility of the insured, not exceeding 15 percent of the indemnifiable damage.

For the band exceeding 30 million euros of insured sum, the percentage of the deductible in the responsibility of the insured damage is left to the free negotiation of the parties.

1. maximum compensation or limits

The catastrophe insurance policies may provide for the application of limits of compensation which respect the following principles:

-????????? for the band up to 1 million euros of insured sum, a compensation limit equal to the insured sum is applied;

-????????? for the range from 1 million to 30 million euros of insured sum, a compensation limit of not less than 70 percent of the insured sum is applied.

1. final provisions

Finally, according to the Interministerial Decree, policy texts must be brought into line with the legal provisions summarized above no later than thirty days from the date of publication of the decree in question.

For existing policies, the adaptation to the legal provisions shall take effect from their first renewal.