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European insurers and reinsurers are well-positioned to ride out recent stock market volatility, ratings agency A.M. Best Co. Inc. said in a research note Wednesday.
In “European Insurers and Reinsurers Withstand Stock Market Volatility but Investment Options Limited,” the Oldwick, New Jersey-based ratings agency says most European insurers and reinsurers are “well-capitalized” and maintain a 20% to 30% buffer in their investment portfolios “to withstand market value fluctuations without incurring negative pressure to their current ratings.”
Further, Best says in its briefing that after the 2008 financial crisis and European sovereign debt crises in 2011 and 2012, “there has been a notable shift from shares to high-quality fixed-income assets.”
Best asserts that although the European insurers and reinsurers that it rates have no significant direct investments in China, “the declines in the Shanghai Composite Index, compounded by ‘Black Monday’ on Aug. 24, 2015, when it tumbled 8.5%, and the contagion effect of the impact of China’s slowing growth on the global economy, is of concern.”
While fixed income still dominates investment portfolios, “The significant declines seen in global equity markets in the past few months, and the drop in commodity prices, come at a time when European (re)insurers have started to move assets back into stocks and real estate,” Best said.
Insurers and reinsurers may face a future with more limited investment choices, Best cautioned.
“If there are worries about a slowdown in global economies, options for insurers to try to increase their investment returns will become more limited as they focus largely on high-quality fixed-income securities that generate lower yields.”
Best added in its briefing that Chinese insurers’ “exposure to equities is within an acceptable level” and that “the China Insurance Regulatory Commission has controlled the asset risk for domestic insurers.”
(Reuters) — Italian insurer Assicurazioni Generali S.p.A. expects its net profit to rise significantly this year as it reaps the rewards of a three-year-old turnaround plan, it said on Thursday after its reported its highest first-half earnings since 2007.