Australian insurer IAG has clarified that it has no net insurance exposure to trade credit policies relating to the collapse of financial services company Greensill Capital.
Greensill, which specialises in supply-chain finance, filed for administration earlier this week after warning that it is in “severe financial distress” and unable to repay a $140 million loan to Credit Suisse.
The move came after Greensill lost insurance coverage for its debt repackaging business and said that its largest client, GFG Alliance, had started to default on its debts.
The collapse threatens to send shockwaves through the financial markets and drive significant losses for re/insurers, causing IAG shares to drop by 10%.
But now, IAG has confirmed that it has no net exposure to trade credit policies including those sold through BCCto Greensill entities.
BCC is an underwriting agency that was authorised to underwrite trade credit insurance on IAG’s behalf through Insurance Australia Limited (IAL), one of IAG’s two licensed insurance subsidiaries in Australia.
As part of a transition arrangement after the April sale of BCC, new policies were underwritten by IAL from the date of sale up to 30 June 2019 and Tokio Marine & Nichido Fire Insurance Co. Ltd (Tokio Marine) retained the risk for these polices, net of reinsurance.
In addition to extensive reinsurance placed by IAG, as part of the sale IAG entered into agreements with Tokio Marine for it to hold any remaining exposure to trade credit insurance written by BCC through IAL.
Since offering this clarification IAG’s share prices have partially recovered, closing down almost 4%.