Investors worried about the impact of a Greek euro exit on Europe's insurers may take heart: Greek debt equals less than 1 per cent of shareholders' equity for most big European groups. Many have written off the value of such assets on their balance sheets to zero.
Europe's insurers have been rapidly reducing their Greek exposure. Insurers have also been selling Portuguese, Spanish and Irish debt, as fears of contagion have risen. While Generali, Allianz and AXA still own large Spanish and Italian government bond portfolios, the assets mainly back insurance contracts written in those countries. That reduces currency risk in the unlikely event they need to be redenominated.
Still, insurers are already suffering from Europe's broader debt woes. Ultralow interest rates and competition from deposit-hungry banks have sharply cut sales of life insurance products, particularly in Italy and France.
And while the potential consequences of a Greek euro exit—huge bank losses and company defaults, pressure on other countries to leave the currency—are hard to predict, insurers look highly exposed as some of the Continent's largest corporate debt and equity investors. Holdings of bank debt alone are often more than half the value of their shareholders' equity. Sure, the average European insurer is trading at just 80 per cent of book value, implying shareholders expect trouble ahead. But a Greek euro exit could be a further costly blow.
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