S&P Report: Solvency II More Significant for European Insurers than Credit Crunch

May 8, 2008

Standard & Poor’s Ratings Services has published a report – “Subprime Asset Losses And Related Capital Market Disruption Still Have Little Effect On European Insurance Industry” – which says “it expects U.S. subprime asset mark-to-market losses and the broader disruption in capital markets to have limited implications for Europe’s insurers.”

S&P credit analyst Simon Marshall noted: “To date, the insurance operations of groups headquartered in Europe have disclosed $7 billion mark-to-market losses associated with subprime losses, but we continue to believe that the broader disruption in capital markets has had a relatively minor impact on individual industry participants.”

S&P warned, however, that a “major catastrophic event could change this picture for the worse since insurers’ ability to recapitalize, either in the form of equity or hybrid debt, would be constrained in the current environment.”

The report also concludes that Solvency II promises to be much more significant for the European insurance industry than subprime issues–for example, it will accelerate consolidation in Europe.

“The results from QIS 3 indicate to us that Solvency II would force more than 25 percent of Europe’s insurers to face major strategic decisions,” Marshall added. “They may need to reduce scale, reduce risk, raise capital, employ more risk mitigation, merge with other insurers, be acquired, or close to new business.”

Source: Standard & Poor’s – www.standardandpoors.com

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