LONDON (Reuters) – The credit ratings of European insurers would be cut if Greece was to suffer a disorderly exit from the euro, hit by a slump in the value of their investments, credit rating agency Fitch said on Wednesday.
Worst-hit would be those in fiscally-stretched countries such as Italy and Spain, seen as particularly vulnerable because of their large holdings of their own countries' distressed sovereign and bank debt.
“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,” saidChris Waterman, head of European insurance at Fitch.
If Greece's departure were managed so as to contain the market effects, insurers based in the economically healthier northern eurozone countries would likely survive with their credit ratings intact, Fitch said.
The industry would also be able to mitigate the impact of a Greek exit by passing on some losses to customers who hold unit-linked products, where investment risk is shared by policyholders and shareholders.
Regulators probably would also relax solvency rules so as to help insurers cope with sharp falls in the value of their investment assets, Fitch said.
Some British life insurers would have been “on the brink of insolvency” during the 2008 financial crisis without such regulatory lenience, according to Fitch insurance analyst David Prowse.
Italy's ISVAP watchdog last year said insurers did not have to count all losses on sovereign debt when calculating their solvency ratios, shielding Generali, holder of 46 billion euros ($58.31 billion) of Italian gilts, from the full impact of the eurozone debt crisis.
Greek political parties that broadly support the terms of an international bailout deal for Greecenarrowly won the general election on June 17, averting the immediate threat of the critically-indebted nation being forced out of the euro zone.
Fitch's operating assumption is that the single currency weathers the crisis without Greece leaving, although a departure cannot be ruled out, the rating agency said.
($1=0.7889 euros) (Reporting by Myles Neligan; Editing by Greg Mahlich)
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