US firm’s eurozone pull-out is a sign of the times

American International Group (AIG) has become one of the first big US corporations to start to pull out of Europe as the eurozone debt crisis continues to escalate.

Several UK insurers have felt the full effect of the crisis over the past year, most notably Groupama and Aviva. AXA and Allianz also have a significant exposure.

Those most at risk are composites who have accumulated a large amount of peripheral European government debt to cover their payments to life policyholders, and to a lesser extent general insurance policyholders, across their European operations.

AIG has been focused on reducing its exposure to European sovereign debt and the eurozone’s banks, according to a quarterly filing, indicating a loss in confidence in the euro.

So far it has reduced its holdings of German, French and Spanish government debt and banks. The biggest reduction was in German sovereign debt, which it cut by 16% during the first half of this year.

But in contrast it has more than doubled its UK government debt as it seeks a safe haven outside of the single currency.

While the likes of AXA and the Prudential have targeted the USA and Asia as markets for expansion, Aviva has been focusing on its core markets in the UK and Europe.

It seems that most insurers worth their salt however have foreseen the problems with the eurozone and decided to cut their losses. But for others with as big an interest in the region there is more at stake.

It could take years or even decades before Europe recovers from this crisis that has spread to all corners of the continent, from Greece to Germany.

One positive aspect for insurers is that history suggests they are better equipped, because of the balance of their investment mix, than banks to deal with any potential defaults.

But perhaps it is a sign of the times that even US insurers are starting to take evasive action to quell their euro woes.