European insurers' underlying performance remained strong for the first half of this year despite their recent setbacks in the capital markets, according to a report released by Moody's Investors Service.

Moody's said that thanks to insurers' improved asset risk hedging, the industry remains relatively robust overall with no credit rating impact to date for European insurance groups.

Going forward, the New York-based rating service said it would pay close attention to key equity-related metrics, and there could be negative rating pressure for some groups should metrics such as financial leverage and capitalization deteriorate further.

Dominic Simpson, a Moody's senior credit officer and co-author of the report, said in a statement: "As major investors in global financial markets, Europe's insurers are not immune to volatility or, of more concern, negative trends in these markets.

"Not all groups maintain the same levels of exposure to such events, but their [first half] 2008 results confirm that falls in the value of bonds and equities can significantly impact both earnings and capital."

The degree to which European insurers have been affected by such developments varies widely, not only due to differences in their exposures, but also depending on the accounting classification of their assets and accounting treatment with regard to impairment of securities.

The report, "European Insurers' H1 2008 Results: No Overall Credit Impact, But Moody's Continues to Monitor," explains the differences and implications in detail.

"Aside from depressed investment returns, the [first half] 2008 earnings of the major European insurance and reinsurance groups have been notable for the relatively strong performance of the underlying insurance business, in both non-life and life. This is in contrast to some other financial institutions," Mr. Simpson noted.

Moody's said it remains alert to the risk that future capital market movements could place pressure on insurers' balance sheets. In addition, the different ways in which International Financial Reporting Standards accounting rules are applied mean that performance is likely to continue to vary from insurer to insurer for the rest of 2008, as it has so far this year.

Special Reports /

Moody's: European Insurers' 6 Mo. Results Remain Strong

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