Solvency II upstages credit crunch for European insurers

by Gill Montia

Story link: Solvency II upstages credit crunch for European insurers

Standard & Poor’s (S&P) has published a new report in which it predicts that the fall in value of US sub-prime asset and the broader disruption in the capital markets created by the credit crisis will have limited implications for insurers headquartered in Europe.

The credit rating agency stated that the insurance operations of European financial institutions have so far revealed sub-prime mark-to-market losses of $7 billion.

With regard to the broader disruption in capital markets, S&P is confident that this has had a relatively minor impact on individual insurance companies.

However, the situation could change if a major catastrophic event occurred, because current market conditions would affect insurers’ abilities to recapitalise following such an event.

The report concludes that Solvency II, the EU initiative that revises insurance solvency rules, will have a greater effect on the European insurance sector than the US sub-prime crisis.

The agency sees Solvency II as prompting consolidation in the European insurance industry and is predicting that the regulations could require over 25% of Europe’s insurers to re-evaluate their businesses.

They may need to consider reducing scale, reducing risk, raising capital, employing more risk mitigation, merging with other insurers, selling the business or closing to new business.