20 June 2012

Fitch: Insurers less exposed than banks to Greek euro exit

Insurance companies’ greatest vulnerability to the sovereign rating is through their investment portfolios. Insurers which were to suffer downgrades on a meaningful portion of their sovereign and bank debt would be at risk of a downgrade themselves. However, Fitch expects life insurers’ ability to pass on losses to their policyholders to be a crucial mitigating factor against a fall in financial markets. The ability to pass on profits normally applies to unit-linked and participating (with profit) business, which accounts for most of the exposure on life insurers’ balance sheets. The amount of losses that can be passed on, however, is limited because of insurers’ requirements to meet certain minimum investment guarantees to policyholders.

Fitch believes there is minimal risk from a potential run on eurozone insurers by policyholders in the event of consumer panic, because insurers’ exposure to guaranteed surrender values is minimal. Insurance companies can, and do, impose significant surrender penalties – which deter policyholders and mitigate the impact on the balance sheet.

In addition, the insurance industry would face only moderate funding constraints if eurozone capital markets were temporarily inaccessible, because most insurers take relatively little funding from the capital markets in any case.

Press release

© Fitch, Inc.