The Eurozone financial crisis continues to be among the most significant challenges facing insurers, although capital is strong for the European primary insurance market, according to a new report from A.M. Best Co.
In the report, "European Non-Life Sector Faces Further Economic Uncertainty", A.M. Best describes the results of two stress tests it conducted in December 2011 and June 2012 on all insurers and reinsurers domiciled in the Eurozone or with significant business operations in the region. The report also comments on the outlook for European insurers, stating that A.M. Best retains its negative view on the European insurance sector, as structural issues of the Eurozone do not appear likely to be resolved anytime soon.
Stefan Holzberger, managing director, analytics, said: "Despite balance sheet concerns, operating fundamentals for most companies remain strong. In the context of extreme global catastrophe losses in 2011, reported earnings were robust and have remained so in 2012. Primary European insurers appear able to withstand a significant amount of continued deterioration and volatility, although if conditions were to worsen to a level beyond stress test assumptions, further negative rating actions may be necessary."
The report states European insurers are attempting, where possible, to increase rates, and underwriting margins are passable based on current pricing. Reserving levels are showing stability, with modest reverse releases benefitting returns. However, Sam Dobbyn, associate director, analytics, added: "A.M. Best´s greatest concern for European primary insurers is the sudden impact macroeconomic conditions can have on an insurer´s balance sheet. Scenarios that could place a company under severe pressure include the write-down of a large European country´s sovereign debt, or the exit of a current member of the Eurozone and the expected contagion effects of such an action. A.M. Best currently believes both of these scenarios are unlikely, but they could have extremely damaging consequences for the sector if they were to occur."
Yvette Essen, report author and director of industry research, Europe and emerging markets, added: "In 2012, economic conditions have continued to deteriorate in the Eurozone, and previous projections of economic recovery have proved to be optimistic."
The report notes that there are additional risks regarding the ability of the European Central Bank (ECB) to fully implement its bond-buying programme, given that the plan may face political resistance. While short-term relief may be provided, fundamental long-term concerns that have contributed to the Eurozone crisis"”such as the lack of competitiveness of southern European countries versus those in the north"”have not been addressed.
To access a complimentary copy of this report, please visit www.ambest.com/press/101601europeannonlifereport.pdf.
Founded in 1899, A.M. Best Company is the world´s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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