It’s a matter of time before other insurers follow Lloyd’s example and reduce their exposure in the eurozone

In one of the most telling moves since the start of the eurozone debt crisis, Lloyd’s chief executive Richard Ward has revealed that the London market has reduced its exposure to Europe.

And amid fears of a Greek exit and the collapse of the euro, Ward last week confirmed that Lloyd’s has a back-up plan in place to switch settlement to other currencies in the event of Greece pulling out.

But, more worryingly, he also revealed that Lloyd’s was prepared to take writedowns on its £58.9bn investment portfolio if the currency collapses.

There were some words of encouragement, however. Ward does not believe Greece’s departure would cause the eurozone to fall apart, but he added Lloyd’s would be prepared for that eventuality.

The eurozone’s woes have hit home in recent weeks with UK insurers as the crisis has escalated. Aviva, which is heavily exposed on the continent, announced plans to sell its Sri Lankan and South Korean businesses to bolster its capital buffers.

As late as last week, rating agency Fitch sent out a timely reminder, flagging up Aviva and Allianz’s eurozone debt exposures, with the former having significant exposure to Italy via its subsidiary, and Allianz Italy carrying a large portion of Italian sovereign debt.

Groupama also suffered a €1.76bn (£1.40bn) loss in 2011, primarily due to write-downs on Greek debt and losses on equity holdings.

One thing is certain – the eurozone crisis will get worse before it gets better for insurers, and it wouldn’t be a surprise to see more companies taking big writedowns on their investments across the continent as they seek to de-risk their portfolios.

Those insurers willing to adopt a wait-and-see approach are playing a deadly game. But there could be significant rewards for those willing to hold their nerves if and when Europe returns to stability.

Cobra deal deadline slips

In other news, the deadline for Alto Intermediary Group’s takeover deal of Cobra, due to expire today, has been put back to 7 June to give the company more time to arrange financing.

While it seems a deal could be on the cards, Cobra’s members will have to wait another week to have their future decided.