Insurance Australia Group said it had no “net insurance exposure” to policies sold to Greensill Capital on Tuesday in response to a 10 percent drop in the share price amid concerns over its ties to the London financial group that collapsed.
The Australian insurer told investors that the sale of its 50% stake in BCC, a Sydney-based commercial credit insurer, to Japan’s Tokio Marine in 2019 eliminated its exposure to policies sold to Greensill, a supply chain finance company.
Market update follows IAG announced trading halt on the Australian stock market after its shares sold following Greensill’s announcement for administration in the UK and Australia. IAG shares fell 49 cents to A $ 4.32 (US $ 3.31) in early morning trading.
IAG said it had put in place a transitional arrangement following the sale of BCC to Tokio in April 2019 which lasted until the end of June 2019, whereby the Japanese insurer retained the risk for any new policy taken out, minus reinsurance.
“In addition to the extended reinsurance put in place by IAG, as part of the sale, IAG has entered into agreements with Tokio Marine to hold any remaining exposure to commercial credit insurance underwritten by BCC through IAL. [a subsidiary of IAG]”IAG said in a statement.
Shares of IAG rallied after the market update, closing nearly 4 percent at AU $ 4.62.
IAG, Tokio Marine and the 100% subsidiary of Japanese insurer BCC provided commercial credit insurance to Greensill, including implosion threatens tens of thousands of jobs among its clients in the UK and Australia.
Last week Greensill lost a legal battle to force insurers to extend two policies covering $ 4.6 billion in working capital funding – a move that precipitated its collapse. Credit Suisse too frozen $ 10 billion in funds linked to the company, depriving it of an important source of funding.
According to court documents released last week, Tokio Marine notified Greensill of its decision to stop hedging in July after discovering that a BCC underwriter had exceeded their risk limits, insuring amounts in excess of $ 10. billion Australian dollars. The underwriter was terminated.
Tokio Marine declined to comment on its exposure to Greensill. On Tuesday, its share price was up 1.7% during the morning session in Tokyo, investors have not yet assessed the risk held by the Japanese group.
Nathan Zaia, analyst at Morningstar, said IAG’s statement was reassuring and should help sort out market issues.
“On paper, it looks like IAG shouldn’t be affected, but it could still turn into a legal battle between IAG and Tokio Marine,” Zaia said.
However, the collapse of Greensill frightened IAG investors.
Monday John Hempton, a short selling hedge fund manager, published a blog post revealing that he wrote to Australian financial regulators three months ago to report Sydney-based IAG’s exposure to Greensill.
Hempton, known for his bets against companies such as Valeant Pharmaceuticals and Wirecard, raised concerns about the level of insurance extended to Greensill by IAG, calling it a “potential solvency risk” for the group in its letter to Australian prudential regulator Apra.
Hempton also cited the risk held by the Japanese Tokio Marine. The two companies could be in a “world of pain,” he said.
Apra declined to comment on Tuesday.
Australian regulators have discussed IAG’s exposure with Greensill. They also have interviewed Credit Suisse about his relationship with Greensill, including his financial exposure to the company and his role as an advisor to a pre-IPO fundraiser that was subsequently called off, according to two people familiar with the discussions.
Credit Suisse has appointed McGrathNichol as receiver of a Greensill company in Australia in an attempt to secure its interests, including a $ 140 million loan advanced to the finance company last year.