Europe insurers need fresh capital vaccination

LONDON: European insurers are financially robust and unlikely to require injections of fresh capital, barring an Italian sovereign default or break-up of the single currency area, analysts said.

European insurance stocks have on average lost a third of their value since February, partly reflecting fears insurers could be forced to raise cash to offset impairments on their government bond holdings as the eurozone crisis deepens.

This week's state bailout of Franco-Belgian lender Dexia, laid low in part by heavy exposure to distressed Greek debt, has stirred memories of the 2008 crisis, when some insurers had to be propped up by the taxpayer alongside big chunks of the banking sector.

But the insurance industry, having spent the last three years bolstering and de-risking its capital base, and immune from the drying-up of wholesale credit that is weighing on the banks, is at present unlikely to run out of cash, analysts say.

"Investment leverage is high and the market is concerned that they'll have to raise capital as eurozone issues deteriorate," said Jefferies International analyst James Shuck.

"The downside is potentially significant but the probability is small - there are no specific worries among any of the quoted players at this stage."

Shuck and rival insurance analyst Barrie Cornes of Panmure Gordon published research this week downplaying the likelihood that, respectively, Axa and Aviva would need to raise additional capital. "There's a whole raft of reasons why it's very unlikely," Cornes said.

Copyright Reuters, 2011