EIOPA is warning insurers about the Eurozone sovereign debt being their biggest threat. The risk related to their government bond holdings could suffer losses.
“The progress towards sustainable debt levels for sovereigns, both in Europe and globally, will determine whether these risks materialise to adversely impact the financial situation of (insurers),” EIOPA said on Thursday in a twice-yearly review of the sector’s financial stability.
The risk of insurers taking a hit on their holdings of Eurozone sovereign debt has increased in the last six months, and is expected to grow again between now and the end of the year, EIOPA said, citing feedback from national insurance regulators.
Yields on bonds issued by small Eurozone nations Greece, Ireland and Portugal have soared amid concerns they might default on their debt, raising fears over the creditworthiness of larger but also critically indebted Spain and Italy.
Analysts have said major listed insurers are protected by their limited holdings of Greek, Irish and Portuguese debt, but some would face big losses in the event of a Spanish or Italian default.
Italy’s Generali, Europe’s third-biggest insurer, has among the biggest gross exposures to risky Eurozone sovereign debt, with holdings of 59.5 billion euros, according to analysts at Barclays Capital.
An EIOPA stress test of European insurers aimed at gauging their resilience to economic shocks, published on Monday, has been criticised as too lenient because it did not model the impact of a sovereign default.
European insurers have built up their financial strength, improving their ability to withstand investment losses, but spreads on the credit default swaps of several insurers have remained at high levels since the start of the sovereign debt crisis, EIOPA said.
Insurers face additional threats from defaults on corporate and household debt, and could struggle to meet guaranteed returns promised to policyholders if interest rates remain at current low levels for a prolonged period, the regulator added.
Source : Reuters
