?The European insurance industry continued to enjoy ratings stability and good results in the first half of 2007 despite the global credit crunch and weather-related catastrophes, according to Moody’s.

But the ratings agency warned that while the operating environment should remain generally supportive to rating stability in the short term, external shocks or financial markets corrections could present a challenge for the industry.

Moody’s said that European insurers had generally reported stable or improved underlying operating results and had further strengthened their balance sheets in recent months.

This was against the backdrop of turmoil in the credit markets, particularly the US sub-prime credit market, and major weather-related claims such as storm Kyrill in January and the recent UK floods.

Moody’s also said that climate change was viewed as one of the main challenges and opportunities for the industry in coming years.

This presented an increasing challenge for the sector, particularly with regard to the pricing, modelling and reinsurance management of insurance lines more exposed to catastrophe losses.

But there were long-term opportunities for insurers from climate change.

Jose Morago, a Moody’s assistant vice president-analyst, said: “Those companies that best know how to innovate and identify customers’needs in the context of appropriate underwriting and risk management could benefit the most.

“European insurers face an ongoing challenge with respect to their ability to control and extract value from their distribution channels and ultimately their ability to grow revenue and retain customers.

“Increasing cross-sector/cross-channel competition, new regulations, the increasing influence of some distribution channels on margins and the potential cannibalisation of other internal channels are all key issues.”