LONDON (Reuters) – European insurers' solvency is deteriorating because of persistently low interest rates and market turmoil triggered by the euro zone debt crisis, the region's insurance regulator said on Monday.
Europe's top 20 insurers are in good overall financial health with average capital reserves at 200 percent of the required minimum, but their solvency ratios have “started slightly to decrease,” EIOPA said in its twice-yearly financial stability report.
Insurers generate income to make payments to their customers by investing in bonds and equities, and the sector has suffered a drop in revenue as rock-bottom interest rates have dragged down yields on high-quality government debt.
The industry has also taken a hit to its capital reserves because of a sharp fall in the value of lower grade debt and equities amid the escalating euro zone crisis.
Insurers' ability to withstand the low interest rate environment could be undermined by “a failure of governments to stabilise their fiscal situations or a disruptive unwinding of currency risk,” EIOPA warned.
While a 100-billion-euro ($125 billion) bailout agreement for Spain's banks at the weekend boosted markets on Monday, fears remain that crisis-hit Greece could be forced out of the euro if anti-austerity parties win its June 17 election.
EIOPA also said low interest rates were weighing heavily on defined benefit pension schemes, whose payouts depend solely on the performance of the funds in which they invest.
Europe's 20 biggest insurers include Allianz, Axa , Generali, and Prudential.
The Stoxx 600 European insurance index was 1.6 percent higher at 1200 GMT, still down 15 percent compared with a year ago.
($1 = 0.8021 euros) (Reporting by Myles Neligan; Editing by Mark Potter)
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