EU Initiative Mitigates Credit Crunch for European Insurers

Article published on 8th May 2008

Standard & Poor's (S&P) has released a new report predicting the relative safety of European insurance companies despite the value-decline of US sub-prime asset and the more general disruption caused by the credit crisis in the capital markets.

S&P have said that European financial institutions have shown sub-prime mark to market losses of around seven billion dollars in their insurance operations, and with regard to wider disruption in capital markets S&P is confident individual insurance firms have experienced only a minor impact. If, however, a large scale catastrophic event were to happen, this situation may well change due to the fact that the ability of insurers to recapitalise after such an event would be effected by the difficult market conditions.

The report suggests that the EU initiative, Solvency II, which revises the existing insurance solvency rules, will have a more profound effect upon European insurance than the sub-prime crisis in the USA.

S&P predicts that the Solvency II regulations could require over a quarter of European insurers to re-evaluate their business, perhaps by raising capital, reducing risk and scale, adopting greater risk mitigation, mergers with other companies in the sector or even selling the business entirely.

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