The European insurance sector should be able to absorb shocks arising from an orderly Greek exit from the euro, according to a new report by ratings agency Fitch.
It says most major European insurers have negligible direct exposure to the sovereign debt of Greece - typically less than 1% of shareholders' equity.
But it says a disorderly Greek exit could have a materially negative impact on the ratings of European insurers, with contagion hitting credit quality and asset values, leading to a squeeze on insurers' capital.
Insurance companies' large holdings of sovereign debt make them vulnerable to any deterioration in the credit quality, market value or liquidity of these securities.
Fitch takes sovereign downgrades into account when reviewing the ratings of insurers. Insurers could also be at risk of downgrades if a meaningful portion of their bank debt securities holdings were downgraded.
Fitch recognises that the results of the Greek election lessen the risk of a short-term exit but believes that Greece remains under significant financial pressures, and does not rule out the possibility of an ultimate exit.