Speaking today at the ratings agency's Insurance Roadshow, managing director Chris Waterman said stress tests had shown that all its rated insurers would be able to withstand a Greek sovereign default. However, in the "unlikely" event of an Italian or Spanish default insurers would be affected, he said.

The primary concern, according to Fitch, is "a disorderly contagion spiral". It believes most insurers to be capable of absorbing immediate credit, market and liquidity risks if the contagion risk is quickly contained. However, widespread negative rating action is possible if the risk of contagion is amplified.

Waterman explained that those insurers that have experienced rating deterioration fall into two key areas - those that operate in peripheral eurozone countries where the sovereign has been downgraded and those with cross-border exposure to eurozone sovereign risk.

Despite acknowledging that the sovereign crisis has escalated significantly in recent years, Fitch said it has observed a trend of insurers de-risking their portfolio with respect to eurozone sovereign risk.

The vast majority of Fitch's portfolio is not expected to experience substantial downgrades in the near future, although a major development such as the demise of the eurozone or the euro currency would change this.