European insurers' underlying performance remained strong forthe first half of this year despite their recent setbacks in thecapital markets, according to a report released by Moody'sInvestors Service.

Moody's said that thanks to insurers' improved asset riskhedging, the industry remains relatively robust overall with nocredit rating impact to date for European insurance groups.

Going forward, the New York-based rating service said it wouldpay close attention to key equity-related metrics, and there couldbe negative rating pressure for some groups should metrics such asfinancial leverage and capitalization deteriorate further.

Dominic Simpson, a Moody's senior credit officer and co-authorof the report, said in a statement: "As major investors in globalfinancial markets, Europe's insurers are not immune to volatilityor, of more concern, negative trends in these markets.

"Not all groups maintain the same levels of exposure to suchevents, but their [first half] 2008 results confirm that falls inthe value of bonds and equities can significantly impact bothearnings and capital."

The degree to which European insurers have been affected by suchdevelopments varies widely, not only due to differences in theirexposures, but also depending on the accounting classification oftheir assets and accounting treatment with regard to impairment ofsecurities.

The report, "European Insurers' H1 2008 Results: No OverallCredit Impact, But Moody's Continues to Monitor," explains thedifferences and implications in detail.

"Aside from depressed investment returns, the [first half] 2008earnings of the major European insurance and reinsurance groupshave been notable for the relatively strong performance of theunderlying insurance business, in both non-life and life. This isin contrast to some other financial institutions," Mr. Simpsonnoted.

Moody's said it remains alert to the risk that future capitalmarket movements could place pressure on insurers' balance sheets.In addition, the different ways in which International FinancialReporting Standards accounting rules are applied mean thatperformance is likely to continue to vary from insurer to insurerfor the rest of 2008, as it has so far this year.