Disorderly Grexit may hurt insurers’ ratings

City A.M. Reporter
EUROPE’S insurance sector should be able to withstand a Greek exit from the euro, according to a new report from rating agency Fitch, provided that the exit is “orderly”.

“Most major European insurers have negligible direct exposure to the sovereign debt of Greece – typically less than one per cent of shareholders’ equity,” Chris Waterman, head of EMEA Insurance at Fitch said.

But he warned that a so-called disorderly exit could have a more unpredictable effect.

“A disorderly Greek exit could have a materially negative impact on the ratings of European insurers with contagion hitting credit quality and asset values, leading to a squeeze on insurers’ capital,” he said.

Insurance firms in under-pressure Spain and Italy could be worst hit if Greece was forced to leave the single currency, due to the large positions they hold in their own countries sovereign debt.

David Prowse, a senior director in Fitch’s insurance team, suggested that in the event of a disorderly exit regulators could help by “relaxing rules for assessing regulatory capital if widespread falls in the market values of financial assets threatened insurers’ solvency positions.”

Meanwhile, life insurers were given hope yesterday that they could get more time to adapt to Europe’s tough new Solvency II capital rules under a proposal from a senior lawmaker. Life insurers would be allowed to phase in the capital requirements for their existing policies over seven years under a plan drawn up by Burkhard Balz, the German lawmaker tasked with steering Solvency II through the European Parliament, several sources said yesterday.

“There is an idea on the table to provide for a transition of existing life insurance contracts to the new Solvency II regime,” said a spokeswoman for Michel Barnier, European commissioner in charge of the single market.

“Nothing has been decided yet - the final decision will be taken by the co-legislators.”