Analyst says Aviva is the only UK insurer where exposure is material

Aviva is the UK-listed insurer most exposed to the European debt crisis, because of its large life insurance operation and strong presence in fragile eurozone economies.

AXA’s eurozone weakness was demonstrated last week, when its share price dropped 15% in a day-and-a-half of trading, over fears that contagion was spreading to France.

Collins Stewart analyst Ben Cohen said: “Any kind of default would hit Aviva very hard and any sort of exit from the eurozone would probably hit the value of what it owns in the relevant country.”

The financial impact of a default on life insurers is hard to measure, as it is unclear how the losses would be shared between policyholders and shareholders on the life side.

“Normally there’s an 85% share for the policyholder, 15% for the shareholder. But what we saw with some write-downs of Greek debt in other companies in the first half was different treatment of the policyholder share,” Cohen said.

Aviva holds around £40bn of continental government bonds. Cohen said £11bn is owned by shareholders and more than half attributable to France, Portugal, Italy, Ireland, Greece and Spain (the £1.4bn ‘PIIGS’ debt quoted by Aviva chief Andrew Moss two weeks ago excluded France and policyholder assets).

“Presuming it doesn’t all go bad and policyholders take a big part of it, you’d be looking at relatively small hits, but it is the only UK company where exposure is material,” he said.

Although AXA is seen as financially sound, downgrades to French government debt, which AXA holds, would trigger a drop in bond prices.