Posted on Jun 12, 2012 by Sergio Ulloa
As the Euro zone debt crisis continues to take its toll on economies and industries, some European insurers may be experiencing a decrease in their solvency ratios and recent credit ratings appear to be reflecting this as a result.
Low interest rates and unstable markets have impacted the means by which insurers generate their income, and whilst Europe's top 20 insurers are currently maintaining stable overall financial health the current economic climate and the rocky Euro currency remain a constant threat.
A.M Best Company analyses the credit ratings of companies within the insurance industry and has been keeping a close eye on the effect of the debt crisis on European insurers in particular.
By stress-testing the balance sheets of insurers against factors such as their corporate bonds, equities and exposure to the debt crisis, A.M Best Co is able to evaluate investment risk exposure and assess financial strength and creditworthiness.
A.M Best performed such tests in 2011 and placed many insurers under review with a negative outlook. Since then, the company has continued to closely analyse European insurers and reviews have been re-examined but results still appear to reflect the current unstable climate.
Italy has been hit particularly hard by the debt crisis and Italian insurance giants Generali have been greatly exposed to the unstable markets as a result.
A.M Best has noted that whilst Generali (and other European insurers) are still showing strengths and are deserving of their current ratings, the instability of the European situation can still only allow for them to be placed with a negative outlook.
The solvency of the European banks offer significant risks to the insurance sector and with the now very real prospect of a Greek exit from the eurozone, which would in turn have a domino effect on the peripheral countries, the chances of the situation improving any time are slim, to say the least.
With such a bleak future for Europe, it is expected that further rating actions could take place in the upcoming months and it is unlikely that these will be moving upward in a positive direction any time soon.
Financial markets do not normally take a 'wait and see' approach and as a working solution to Europe's debt crisis is still yet to surface, A.M Best expects to witness further instability in European markets and the financial institutions involved within them.