22 March 2012 Insurance

Better solvency ratios reflect sovereign bond recovery, says Fitch

Rating agency Fitch has welcomed the recent rise in European insurer’s solvency ratios.

However the agency notes that this rise is likely to be more a reflection of the recovery of the sovereign bond markets, than any underlying improvement to insurers' balance sheets.

In a statement this morning it said: “Insurers targeting high investment-grade ratings may need to improve the quality of the capital they hold to reduce volatility in their solvency ratios.

“Insurers reporting results over the last few weeks have generally noted that solvency ratios have strengthened significantly since the end of 2011, when the deterioration in sovereign bond markets sent ratios lower across the board.

“While stronger ratios are clearly preferable, we believe volatile ratios are not in keeping with the highest ratings, as they indicate that an insurer has a limited ability to shield itself from significant market moves.”

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