Insurers can withstand Euro debt shock

Insurers such as Amlin Corporate are strong enough to withstand a European sovereign debt crisis, even if Greece defaulted, Fitch says.

Although insurers across Europe have invested in government bonds, including securities from more risk prone countries such as Portugal, Greece and Spain, their finances are strong enough to withstand a large shock.

The shock could include a deterioration in the market value of the securities or possibly a full in default by Greece, which would mean a substantial investment loss on those bonds.

Amlin Corporate and seven other European insurers were stress tested by the rating agency, but came through strongly.

"Insurance companies, as substantial investors in fixed-interest securities and as businesses that rely heavily on investment returns for a large part of their profitability, can be affected by difficulties facing sovereign issuers. In recent months certain sovereigns have faced such difficulties, including Greece, Portugal, Spain, Ireland and Italy," Fitch says, in its report called European Insurers Resilient to Street Test.

“Fitch Ratings has applied a sovereign stress test to its rated portfolio of European insurers. The agency believes that all companies in this portfolio would be able to withstand an external shock derived from a hypothetical Greek sovereign default, including an assumption of ancillary stress for other key euro zone nations. The agency has therefore not taken any rating actions on its European insurance portfolio as a result of this stress test."