European insurers' exposure to certain heavily indebted countries within the eurozone is not expected to weigh down those insurers' credit profiles, Moody's Investors Service said in a Special Comment.

"Crucially, whilst gross eurozone sovereign debt exposures remain significant for many European insurers, the insurance sector's net exposures--after policyholder participations, tax and minority interests--remains manageable, particularly given the general ability of insurers to hold assets to maturity," said David Masters, a Moody's analyst and author of the report.

In the report, Moody's also said it does not expect European insurers to be forced to crystallize the current levels of loss-to-par suggested by the market value of some of these assets, due to European insurers' continued strong liquidity.

Equally, Moody's noted that during the 2010 first half, European insurers have, in aggregate, witnessed reductions in the value of their Greek sovereign debt, driven by both spread-widening and active net-selling.

Mr. Masters said that while certain eurozone countries clearly face a number of challenges, "sovereign ratings for these countries, other than Greece, all remain investment-grade, reflecting medium-term credit fundamentals."

He added that the relative ratings (Aaa to A1) are based on each country's economic vitality, government financial strength going into the crisis, and the intensity and likely success of fiscal adjustments to stabilize debt metrics. "These ratings remain higher than the majority of European insurers' corporate bond portfolios," Mr. Masters said.

He cautioned, however, that while the current risk remains manageable, if European insurers suffered meaningful investment or operational losses in the eurozone, due to a worsening of the economic climate, "it could trigger negative rating actions on individual insurers."