European Insurers’ Greek Hit Fuels Debt Concerns

Allianz and Generali followed rivals in aggressively writing down holdings of Greek government bonds on Friday, fuelling investor concerns about the possible impact on insurers of a worsening sovereign debt crisis.

Analysts say major European insurers have moderate exposure to Greek sovereign bonds, but would face more damaging losses in the event of a default by bigger debtors such as Spain or Italy.

The release of quarterly earnings by the insurers is the first real indication from them of the cost of their exposure to Greek bonds, giving investors a taste of the potential losses.

Shares in Allianz, Europe’s largest insurer, were worst hit and had dropped by 3.8 percent at 1150 GMT. The stock was the biggest faller in the Stoxx 600 European insurance index, itself 1.6 percent lower amid a wider market slump.

Allianz reported an 8.2 percent decline in its second quarter profit, wrong-footing analyst expectations of a 23 percent increase. The German insurer wrote off half the value of its Greek sovereign exposure, crimping net profit by €326 million ($463 million).

“Today is not an ideal day to report results, and this is particularly true when net income misses on the back of a Greek sovereign write down,” Espirito Santo analyst Joy Ferneyhough wrote in a note.

Global stock markets have tumbled in the past five days, with the FTSEurofirst share index down nearly 11 percent, on mounting fears of another U.S. recession, and as worries about European sovereign creditworthiness spread from Greece to Spain and Italy.

Italy’s Generali also took a sizeable hit on its Greek debt, writing down the value of its holdings by 47 percent. The company still managed to beat analyst forecasts with a 12.7 percent increase in operating profit.

Generali shares were 0.4 percent higher, putting them among a small handful of insurance stocks to remain in positive territory.

Allianz and Generali’s write downs follow a similar approach from rivals AXA and Munich Re, who on Thursday took haircuts of 40 percent and more than 50 percent on their Greek bonds.

The write downs exceed the 21 percent cut agreed by private sector creditors in last month’s second Greek bailout package, an approach that has also been taken by some of the banks which signed up to the deal.

“We estimated 21 percent to be sufficient…but the company decided to execute kitchen sinking and write down to market value. We appreciate this,” Kepler Capital Markets analyst Fabrizio Croce wrote in a note.

Prudential , which reported a forecast-beating 25 percent rise in profit thanks to strong growth at its flagship Asian unit, said it was insulated from the euro zone crisis as its risky sovereign holdings amounted to just £53 million ($86.5 million). But the British insurer’s shares fell by 2.2 percent.

And although Anglo-South African insurer Old Mutual said turmoil on world stock markets may delay the planned initial public offering of its U.S. fund management business next year, it too reported robust earnings.

The company, which beat forecasts with a 15 percent profit increase, said it also offered a safe haven from the euro zone crisis, with less than £5 million [$8.16 million] of risky sovereign debt on its books. However, its shares fell by 2.8 percent.