The good news: H1 2010 showed stabilization of capital and earnings for European insurers. The bad news: The challenges these insurers will face for the remainder of 2010 will make it difficult for them to restore profitability levels to those witnessed pre-crisis, according to Moody’s report "European Insurers' H1 2010 Results: Capital and Earnings Stabilise, but Market Conditions Remain Challenging." This reinforces the negative outlook from the rating agency on the wider European insurance industry.

"Moody's considers that European insurers' H1 2010 results represent a period of contrasting quarters, at least for the investment markets,” says David Masters, Moody's analyst and author of the report. “Q1 generated generally positive investment results, which was offset by significant market volatility in Q2."

The underwriting conditions for European P&C insurers will remain challenging over the near term, due to the generally flat combined ratios for primary insurers in H1 2010, and deteriorating results for reinsurers following the unusually heavy natural catastrophe losses in H1, Moody’s says. However, the agency notes, this picture is not uniform across markets; some markets are witnessing significant premium-rate increases (e.g., UK, Ireland), while others remain soft (e.g., the German motor sector), despite meaningful levels of claims inflation.

"Life insurance sales showed an improvement compared with H1 2009, although H1 2009 presented a very difficult sales environment and so by comparison, H1 2010 necessarily generates positive results; to this extent, the positive results are not something which we place great emphasis on," adds Masters.

Life insurance margins showed a slight overall worsening in H1 2010, despite increased sales volumes, although this was primarily caused by changes in insurers' business-mix rather than by deterioration in underlying profitability, the firm says.

Debt issuance remains subdued, although capital market access has widened from H1 2009, when only the largest insurers were able to access the markets. As Solvency II evolves and further industry consolidation occurs, Moody’s consider that insurers debt-issuance volumes will increase over the coming quarters.

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