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Greensill collapse does not ‘crystallise any exposure for TMNF,’ says Tokio Marine

23rd March 2021 - Author: Luke Gallin

Japanese insurance giant Tokio Marine has said that the insolvency of financial services company, Greensill Capital, does not result in any exposure to the Australian branch of Tokio Marine & Nichido Fire Insurance Co., Ltd (TMNF).

greensillGreensill, a specialist in supply-chain finance, filed for administration earlier this month after warning that it was in “severe financial distress” and unable to repay a $140 million loan to Credit Suisse.

It came after the financial services firm lost insurance coverage for its debt repackaging business and said that its largest client, GFG Alliance, had started to default on its debts.

In the days that followed, Australian insurer IAG confirmed that has no net insurance exposure to trade credit policies relating to the collapse of Greensill, including those sold via underwriting agency BCC to Greensill entities.

After the acquisition from IAG and others in April of 2019, BCC is now an insurance agent of Tokio Marine located in Australia. Prior to the acquisition, BCC handled insurance policies as an agent of IAG. Following the acquisition, BCC handled insurance policies as an agent of TMNF Australia branch.

As we’ve discussed previously, one of BCC’s core lines of business is trade credit insurance and as such, there’s been widespread speculation about potential losses at Tokio Marine.

On March 10th, the Japanese insurer told the FT that it expects its exposure to the collapse of Greensill to be limited by its reinsurance protection.

Although, this was later challenged by sources at Bloomberg who claimed that the reinsurance contracts Tokio Marine referenced may not actually cover the unit that did the most business with Greensill, being BCC in Australia.

At the same time, sources also confirmed that the likes of Hannover Re and SCOR had recently been told by Tokio Marine that their exposure to Greensill costs would be immaterial.

As speculation continues, Tokio Marine has felt the need to offer some clarification and sway from its general policy not to comment on individual policyholder relationships or policy terms.

Tokio Marine has emphasised that, Greensill was a client of BCC for trade credit insurance and prior to the acquisition in 2019, insurance transactions between BCC and Greensill were written by IAG. Then, after the takeover, the policies were underwritten by TMNF Australia branch.

The insurer goes further to clarify that trade credit insurance does not cover the liability of the policyholder nor the insured, but rather the accounts receivable of the insured. What this means is that if Greensill were the insured, trade credit protection would cover what the firm is owed and not what it owes others.

“As such, in that case, the insolvency of Greensill does not crystallise any exposure for TMNF. The figures that have been reported in the media with respect to underwriting (such as “in excess of AUD 10 billion”) refers to the accumulated amount of the accounts receivable of Greensill, not exposure for TMNF,” explains Tokio Marine.

Additionally, Tokio Marine points to recent court documents which show that BCC notified Greensill and its broker in mid-2020 that it would not renew, increase limits, extend, or underwrite new policies.

“We continue to assess the validity of the cover extended to Greensill,” says Tokio Marine.

Overall, Tokio Marine says that after reviewing the situation carefully, including its reinsurance position, its expected net exposure remains unchanged, “and as a result we don’t see any need to adjust our financial guidance nor do we currently anticipate any material impact on our financials for the next fiscal year.”

The collapse of Greensill threatens to send shockwaves through the financial markets and drive significant losses for insurers and reinsurers.

Just yesterday, reports from the FT highlighted an internal review conducted by Credit Suisse that scrutinises the role of Marsh & McLennan in the collapse of Greensill.

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