The impact of Greece exiting the eurozone is likely to hit market confidence in the region, although insurers and reinsurers operating in the economic bloc are well positioned to withstand a continued period of volatility, according to a new A.M. Best briefing.

A number of European insurers have stakes in Greece’s leading non-life companies, but the small size of the Greek domestic market means they will have no material exposure to the country’s current plight, according to the report.

Of broader concern would be the potential impact that a so-called “Grexit” could have on other peripheral eurozone countries, with particular regard to economic stability, their financial markets and the political precedent set by the Greek government, the report said.

The briefing notes that Greece’s insurance sector, which serves a modest population of 11 million, is small compared with that of other European countries such as Italy, Portugal and Spain. While A.M. Best does not rate any Greek insurers, many participants are owned by foreign entities that do have a rating.

Carlos Wong-Fupuy, senior director, analytics, noted that European insurers don’t have that significant a presence in Greece anyway.

“From an underwriting perspective, while European insurers have operations or subsidiaries in Greece, there is no meaningful presence that is likely to have a significant drag on earnings at group level,”Wong-Fupuy said in prepared remarks. “Greek risks tend to represent a small proportion of their business, and consequently, there is little direct exposure to Greek assets allocated to match domestic liabilities.”

The briefing noted there are some segments in the insurance industry that are showing signs of strain from Greece’s troubles. Credit insurance is proving to be increasingly challenging in the wake of the ongoing uncertainty. Also, reinsurers that have Greek cedants with outstanding premiums may face challenges, such as the risk that those premiums would have to be redenominated should The Bank of Greece resort to printing its own currency, the report continued.

The Best’s briefing stated the greatest risk facing the European insurance industry lies in the general instability of the Eurozone area and the potential contagion to other countries.

Yvette Essen, director, research & communications, added that A.M. Best expects the fall out from a potential Grexit to be more limited. In prepared remarks, Essen noted that other European Union Countries have a much stronger financial situation. As well, she said that European insurers/reinsurers reduced their exposure to Greek sovereign debt after 2012, and have diversified their exposure away from peripheral European countries.

However, A.M. Best believes that developments in the next few weeks could have wider ramifications from a political standpoint. If Greek Prime Minister Alexis Tsipras is successful in convincing European leaders that his country can stay in the Eurozone, while applying less stringent austerity measures and gaining debt relief, other countries in the future may demand the same treatment, the briefing said.

Source: A.M. Best Company