Italian and Spanish
insurers are most exposed if Greek exits from the eurozone –through
the contagion effect it could have on Italian and Spanish sovereign
and bank debt, says Fitch Ratings.
Federico Faccio, senior director for
insurance at Fitch Ratings, explained that Italian insurers have
considerably more exposure to their own sovereign debt than is the
case with Spanish insurers. However, Spanish insurers are more
exposed to the domestic banks, some of which may be reliant on the
sovereign for support.
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Faccio said: “A Greek exit is not Fitch’s
base-case scenario; but if it were to happen, Italian and Spanish
insurance companies would most likely be placed on Rating Watch
Negative or experience limited downgrades following a similar
action on the sovereign ratings – even if the exit were accompanied
by an effective EU policy response, and relatively
orderly.
“There would be a heavier hit to sovereign
and insurance ratings in the event of a disorderly exit with
material contagion to peripheral countries.”
According to Faccio, new business for both
Italian and Spanish life insurers is tailing off because of banks’
efforts to attract more deposits to shore up their financing, and
reduced available income for households.
Bancassurance
impact
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By GlobalDataHe said the reduction in business has had
the greatest impact on insurers that use a bancassurance model – in
which they partner with a bank to sell their products – but the
increasingly attractive deposit rates offered by the banks means
the effect has spread to most companies as well.
Faccio noted: “Of the other major
insurance markets, the UK and German life insurers are largely
sheltered from the sovereign debt crisis, at least in the event of
a relatively orderly Greek exit; while the French companies have a
more material, albeit manageable, exposure. Still, each country has
at least one notable exception.”
In the UK, Faccio said the notable
exception is Aviva, which he said has significant exposure to Italy
via its subsidiary.
He explained that in Germany, most life
insurance companies have only a domestic exposure as their modest
size precludes international operations.
“However, the larger companies do have
such exposure – the most significant of which is Allianz, which
through Allianz Italy is the second-largest life insurer in Italy,
and consequently holds a large portfolio of Italian sovereign
debt,” said Faccio.
