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Sunday 23 January 2011
Author: Russell Group

Ratings agency Fitch hosted its annual European Credit Roadshow in London this week and its head of insurance said the industry had nothing to prove in terms of financial resilience.

Chris Waterman, Managing Director in Fitch's Insurance Group, said: “Whilst the majority of European insurers have proved resilient to the crisis, with most rating outlooks now stable, the preparation for Solvency II, which is due to be implemented in January 2013, will be a key issue for the sector this year.

"Whilst Fitch does not expect widespread rating actions as result of this, implementation will place a significant time and resource constraint on insurers. Broadly speaking, companies that raise capital or de-risk to enhance their regulatory capital position could experience positive rating pressure whereas those which fail to meet minimum S2 requirements, or are close to solvency margin, may be downgraded," added Waterman.

However Fitch warned the European financial picture was a lot less secure.

"2011 will be a crucial year as governments pursue fiscal austerity and, at the European level, the new policy framework and rules of the game are defined for governments and investors," said David Riley, Fitch's Head of Global Sovereign Ratings. "The crisis is systemic in that it reflects concerns about the Euro and Euro area governance, as well as peripheral country vulnerabilities, and it will require a European wide as well as national level policy response.

“Despite these challenges, Fitch believes that underlying credit fundamentals are stronger than current levels of risk pricing imply, and that the risk of a break up of the Euro zone remains small. However, until governments are seen to have placed public finances on a sustainable path and economic recovery is secure, sovereign credit ratings will remain under pressure and further bouts of market turmoil are likely.”

Dan Robertson, Fitch's EMEA Head of Global Infrastructure and Project Finance Ratings told delegates "In general, EMEA infrastructure transactions have demonstrated significant rating stability through the downturn and the outlook for most sectors has stabilised. This is supported by the often essential nature of the assets, structural protections in the transactions and the inclusion of downside risk in Fitch's ratings.

"Those transactions that have suffered have mostly seen only modest downgrades and the few examples of more severe rating actions have been due to transaction specific factors, such as major resource over estimation. Whole Business Securitisation is the exception to this rule and Fitch sees a risk of further deterioration in both the pub and healthcare sectors.”