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AM Best maintains its negative outlook on the European non-life insurance sector following analysis of the results of stress tests conducted by the rating agency in June 2012 and December of last year. In its European Non-Life Sector Faces Further Economic Uncertainty report, the rating agency states that capital remains strong within the European primary insurance market.
Stefan Holzberger, Managing Director of Analytics at AM Best, said: "Despite balance sheet concerns, operating fundamentals for most companies remain strong. In the context of extreme global catastrophe losses in 2011, reported earnings were robust and have remained so in 2012. Primary European insurers appear able to withstand a significant amount of continued deterioration and volatility, although if conditions were to worsen to a level beyond stress test assumptions, further negative rating actions may be necessary."
The report states that European insurers are attempting, where possible, to increase rates and that reserving levels are showing stability, with modest reverse releases benefitting returns. Yvette Essen, report author and Director of Industry Research, Europe and Emerging Markets at AM Best, explained that the protracted financial difficulties in Europe show no sign of abating.
The report notes that there are additional risks regarding the ability of the European Central Bank (ECB) to implement its bond-buying programme fully, given that the plan may face political resistance. While short-term relief may be provided, fundamental long-term concerns that have contributed to the eurozone crisis - such as the lack of competitiveness of southern European countries versus those in the north - have not been addressed, warned AM Best.
AM Best Special Report: European Non-Life Sector Faces Further Economic Uncertainty