In a report published by Moody’s Investors Services, European insurance companies must be cautious concerning new regulations and macro-economic tendencies.
Their focus should be on profitable underwriting and defensive balance sheet management. The rating agency said a cause of concern for the sector was its exposure to both European sovereign and bank fixed-income securities, both assets that are experiencing a period of stress.
A Moody’s statement exposes a possible downturn if one or more contradictory scenarios imagined by the agency were to occur. Limited losses are expected for the insurance sector despite market volatility. This will be a major focus for 2011, particularly if contagion risk spreads to a greater number of peripheral European countries with a cascading effect on the banking sector.
Such a scenario would be unlikely, yet it would have a severe impact on capitalisation of the insurance sector with an obvious negative effect on insurers ratings. Solvency II will continue to be a predominant topic, particularly following the publication of QIS5 results in March 2011.
Despite this widespread caution, Moody’s expects a recovery in the sector’s consolidation late 2011 and early 2012. This resurgence would be due to new market growth in Asia to offset the slow growth in many European markets.
