Japanese insurance giant Tokio Marine has told the Financial Times that it expects its exposure to the collapse of supply-chain financing group Greensill will be limited by its reinsurance protection.
The exposure comes through trade credit insurance policies relating to the, extremely well-documented by the FT’s journalists, 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.
Greensill lost its insurance coverage for the debt repackaging business and said that its largest client, GFG Alliance, had started to default on its debts.
This collapse has sent shockwaves through financial markets and could drive significant losses for some trade credit re/insurers.
Underwriting agency BCC 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.
Following an April sale of BCC last year, 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 reinsurance placed by IAG, as part of the sale IAG entered into an arrangement Tokio Marine so that it would hold any remaining exposure to trade credit insurance written by BCC through IAL.
Which put Tokio Marine on the hook for policies written to support Greensill’s supply-chain finance business.
The FT reported earlier today that Tokio Marine told said its remaining exposure to Greensill was not sufficient to warrant any change to its financial guidance for the year.
Tokio Marine also said that its exposure is limited by reinsurance, suggesting that the insurer would anticipate being able to collect from trade credit reinsurers should its liabilities to Greensill come in.
However, Tokio Marine has also questioned whether the insurance policies covering Greensill Capital business were even valid in the first place.
There’s an expectation this could all end up in court, which could prolong the appearance of any valid reinsurance claims, leaving potential reinsurers covering the loss on the hook until litigation unwinds.
Tokio Marine reportedly stopped the coverage it provided to Greensill as it found an underwriter at BCC had exceeded their risk limits, resulting in the insurance coming under scrutiny as to whether it is valid or not and eventually causing Greensill to sue.
Numbers around US $150 million have been cited in terms of the Greensill exposure that Tokio Marine could be carrying.
Falling to its trade credit insurance book this will add to impacts expected due to the COVID-19 pandemic, which is expected to drive a wave of trade credit losses as well, some of which have yet to be realised by insurers or reinsurers.
In fact, we continue to hear that some trade credit specialist reinsurance firms could face reasonably significant losses related to the pandemic, to which a share of Greensill exposure may eventually be added, it now seems.
Separately, Apollo, the private equity giant and soon to be merged with life and annuity reinsurance specialist Athene, is said to be considering withdrawing a bid for certain entities of Greensill, raising further questions over the future of the Greensill business and how far ramifications could spread.