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Fitch Ratings : European insurers’ exposure to GIP sovereigns manageable

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In a new report published by Fitch Ratings, European insurers’ exposure to Greek, Irish and Portuguese (GIP) sovereigns is manageable and unlikely to have significant ratings implications. The agency’s primary concern for the European insurance sector is the risk of a disorderly sovereign debt restructuring or rollover dislocating broader European markets, leading to significant widening of credit spreads and sharp equity price declines.

“The direct exposure of the European insurance sector to Greek sovereign risk is relatively low and, in most cases, is unlikely to have significant ratings implications in the event of some kind of Greek restructuring or rollover event,” says Harish Gohil, Managing Director in Fitch’s EMEA Insurance team.

Fitch reviewed the exposures of those companies that were previously identified as having the most significant exposure to Greece in relation to their capital base. The updated review showed that in general the exposure to Greek sovereign risk has been reduced significantly, or even eliminated, over the past year. The potential losses for insurers if Greece defaults have thus diminished and in many cases would be nil or negligible.

“However, if the details of any restructuring of the Greek sovereign debt meant that losses exceeded the agency’s expectations, there could potentially be a small number of downgrades,” says Gohil.

Provided that this risk of contagion can be relatively quickly contained, most European insurance groups should be able to absorb the immediate credit, market and liquidity risks with only minor, if any, negative ratings actions.

However, should the risks of contagion be amplified and lead to a protracted period of severe and broad impact across the European markets, with significant credit spread widening and sharp falls in market values, then there could be a risk of negative rating actions for more European insurers.

Fitch’s report “GIP Exposure Manageable, But Broader Dislocation of Financial Markets is Primary Concern” is available at www.fitchratings.com.

Source : Fitch Ratings