Global insurer Swiss Re has warned insurance companies risk losing more than a quarter of shareholder funds if the five most troubled European economies default on their debts.

Speaking at the Swiss Re Economic Forum in London, Senior Economist Darren Pain said a “50% haircut on Greek, Irish and Portuguese sovereign bonds could be readily absorbed in insurers’ existing capital resources”.

“More challenging would be a haircut of that size also covering Spanish and Italian debt,” he said. “In that case, writedowns could lie anywhere between 25% and 35% of shareholders’ equity.”

Such a wide-ranging default could cause up to €143 billion ($187.3 billion) in losses for European insurers, he said.

“The devil is in the detail.”

Italy has more than €300 billion ($393 billion) in sovereign debt maturing next year – more than the other countries put together, according to information from Bloomberg.

“In such a scenario, the prospect for heightened volatility, disorderly markets and a severe recession appear high, imposing additional realised and unrealised losses on insurers’ investment portfolios as well as restricting revenue and earnings generation,” he said.

Swiss Re Chief Economist Kurt Karl says there is also a problem in the US where a “political stalemate is preventing the implementation of sensible fiscal adjustments that could support growth while reducing the deficit”.

“The situation in these two major regions has increased the risk that they will both experience a prolonged period of low growth, low inflation and low interest rates,” Dr Karl said.

A high number of catastrophes, the Euro debt crisis, low interest rates and slowing growth in emerging markets have been blamed as the causes for lower profits next year. But the Swiss Re economists have predicted better results in 2013.

The forum heard the insurance industry has successfully restored its capital base to a higher level than before the 2008 global financial crisis.

This has helped it weather the losses from this year’s catastrophe events, which will nevertheless lower profits this year.

The significant catastrophe losses have also led to a hardening of reinsurance rates.

Premium growth for both life and non-life markets is expected to grow in 2012 and 2013.

The growth of these areas in emerging markets, in the Middle East and Latin America, is likely to be in the 7-9% range.

The series of natural disasters in Asia Pacific could also result in greater awareness of the benefits of insurance coverage, the forum heard.