Daily briefing: Friday - Sum of all fears

Perhaps Solvency II isn’t the villain of the piece after all, as some insurers believe. According to the insurance regulator, Eiopa, sovereign debt in the eurozone is the biggest threat to stability of the industry.

There are essentially two serious scenarios that insurers could face. The worst-case scenario would be a sovereign default. A more likely problem insurers could face is a rating downgrade of a sovereign. This in turn could force them to raise capital to shore up their balance sheet.

Under market-to market accounting rules, insurers aren’t allowed to see out their bonds until maturity in accounting but instead have to periodically mark down the value of their bond assets.

Groupama faces this problem, having invested in Greek bonds that fell deep into junk territory. Ultimately, if capital is being sucked up to strengthen balance sheets, it could be diverted away from underwriting, sucking capacity out of the market.

What’s alarming about Eiopa’s finding is that in a stress test of 129 insurance groups, 13 failed. The tests were so benign they didn’t even include the risk of a sovereign debt. Despite all of this, these scenarios are extreme and unlikely. But then again, that’s what investors said about subprime debt before the credit crunch.

Will Zurich keep its promises?

Zurich is returning to aggregators while promising not to abandon brokers. But it has a big job ahead convincing some personal lines brokers that it means business. Having seen premiums rise dramatically last year, brokers now have to watch as Zurich gets into bed again with the enemy.

Zurich, for its part, says it was acting no differently to the rest of its peers. It’s sure to rankle with some brokers, but at the end of the day, if the price, service and commitment is there, then brokers will continue to place business with the Swiss-based insurer. Now it’s time to see if Zurich is up to that challenge.