A report published today by Fitch Ratings claims its stress-testing of European insurers based on their euro-zone sovereign exposures has resulted in no ratings actions. Fitch used the hypothetical scenario of a default on Greek government debt to carry out a stress test on its rated European insurance portfolio.

The agency believes that all companies in this portfolio would be able to withstand an external shock derived from a hypothetical Greek sovereign default, including an assumption of ancillary stress for other key euro zone nations.

And by “other key euro zone nations” Fitch is referring to the troubled economies of Portugal, Ireland, Spain and Italy, whose “sovereign risk may be a particular concern.” Taking this and other economic factors into concern, the ratings agency followed a two-step stress test process.

First, Fitch identified insurers where sovereign risk may be a particular concern — those insurers with exposure to Greece, Portugal, Ireland, Spain and Italy.

Second, the agency considered the impact of the implications of sovereign risk — meaning, they applied their stress test to selected companies/groups. Fitch considered the Greek default scenario from two perspectives: economic viewpoint and market value viewpoint.

Direct and indirect (realized and unrealized) investment losses are viewed by Fitch as the primary risks for insurers from sovereign debt. Any insurer rated above Greece’s current ‘BBB-‘ level should be expected to be able to cope with the impacts of a hypothetical Greek default scenario. This was confirmed by the outcome of the stress test: all selected companies/groups passed the test.

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Since Fitch believes the insurers in its portfolio can withstand the economic stress and the impact from potentially more severe mark-to-market movements, they have not taken any rating actions on its European insurance portfolio.

This good news comes on the heel of other optimistic European news that was publicized recently. After the European bank stress tests, only seven out of 91 banks were shown to need additional capital in a worst-case scenario — a shocking surprise. We must keep in mind, however, that these tests, though they consider deleterious situations, may not be rigorous enough and therefore, not the end-all be-all of the economic outlook.