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The Actuary The magazine of the Institute & Faculty of Actuaries

Eurozone turbulence threatens insurers’ balance sheets

Most insurers rated by AM Best operating within the Eurozone demonstrated robust balance sheets when it released the results of stress tests in September.

However, since then there has been further weakening of the economic environment, which is having a significant impact on insurers assets in eurozone countries, AM Best said.

"Although AM Best does not forecast a default in Italy-the third-largest bond issuer in the world- there exists a sharp increase in economic uncertainty within the eurozone. AM Best continues to monitor these insurers, and companies with outsize exposure in relation to their risk-adjusted capital are being evaluated for potential rating actions" AM Best added.

The ratings agency said that companies that do not stand out as having excess exposure, but still could be negatively affected, are being asked to provide additional information.

Companies that appear to have little exposure will also be monitored as growth and earnings prospects could be pressured over the near term.

In addition, AM Best will continue to monitor rated entities' liquidity and financial flexibility. Discussions will continue as to the management of investment risk, hedging strategies, growth projections and performance expectations in those countries that may face a recessionary environment.

An increase in fraud is also expected, given the difficult market conditions, according AM Best.

Beyond the uncertainty as to the performance of the financial markets, AM Best cited the absence of a coordinated effort by European leaders to bring a solution to the current crisis as the main concern.

Source: Insurance Insight