08 November 2011

FT: Insurers face crunch time over Italian debt

Big European insurers have been able to watch the unfolding eurozone sovereign debt crisis almost from the sidelines so far. Italy is an entirely different story though. As crisis over the country's bonds hits its most acute phase, risks are rising for insurance company shareholders.

While Greek bond exposures were in the hundreds of millions of euros at most for the big European insurers, Italian exposures are in the billions, even the tens of billions.

But the big complication is the difference between what shareholders in groups such as Allianz, Axa, Aviva and Generali are exposed to directly and the exposures those groups carry on behalf of policyholders. If it comes to the crunch, life assurers will have to take a commercial decision on how much of any losses they can ask policyholders to bear.

“Potential losses on Italian debt would be too large to be allocated to policyholders”, says Thomas Jacquet, analyst at BNP Paribas in Paris. “There is substantial tail risk for shareholders.”

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