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Standard & Poor's Ratings Services examines the effect of recent financial developments, combined with marking-to-market of insurers' investments, on European insurers' balance sheets ('European Insurance Credit Trends: Third-Quarter 2011 Market Movements Take Their Toll On Insurers' Capital Adequacy').
The rating agency comments: "In the past quarter, we have seen the credit quality of certain sovereigns and banks decline, and the economic outlook deteriorate. The effect has been amplified by a sharp fall in interest rates, depressed equity markets, and increased volatility. All these factors helped weaken insurers' third-quarter economic earnings and balance sheets. In our opinion, the European insurance industry's nervousness has grown since we last commented on the sector.
These trends are compounded, in our view, by the potential impact of industry-wide projects, such as implementing the EU's Solvency II Directive on insurance supervision, the International Accounting Standards Board's Phase 2 insurance accounting project, and the Financial Stability Board's designation of globally systemically important financial institutions (G-SIFIs), now expected in 2012."