Tokio Marine questions validity of Greensill insurance policies

Japanese insurer Tokio Marine has said insurance policies in the midst of Greensill Capital’s collapse may not have been valid in the first place, with investors urging the company to detail its exposure to the troubled lender.

Tokio Marine told the Financial Times that his remaining exposure to the London-based financial group, which filed for administration Monday, was not large enough to warrant revising its forecast for the fiscal year ending in March.

The insurer also said its potential exposure to the supply chain finance group was limited because a significant portion of its risk at Greensill was covered by reinsurance.

Since last week, investors and analysts have pressured the Japanese company for information about its exposure to Greensill, and its refusal to disclose details of “individual contracts” has fueled frustration and concern.

People with first-hand knowledge of the Tokio Marine situation said the Greensill issue dominated management’s attention. They added that there was a working hypothesis that many of the questions asked would ultimately be resolved through expected legal proceedings in Japan, Australia and possibly Germany.

Tokio Marine said she remained “ready to protect her interests in court, if necessary”.

The Japanese insurer was put in the spotlight last week after being sued – alongside its subsidiary BCC and Insurance Australia Group – in a failed effort by Greensill to force extension two insurance policies covering $ 4.6 billion in working capital. The trial has since been dropped.

“Although there is no ongoing litigation, it is expected that some aspects of this situation will eventually lead to litigation,” said a person close to Tokio Marine.

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 his risk limits, insuring amounts in excess of $ 10. billion Australian dollars (7.7 billion US dollars). . The underwriter was terminated.

Financial transactions, which concern supply chain finance and whose insurance status is under control, Greensill made payments to suppliers of a particular company and later received payments from that company. The insurance was drafted to protect Greensill from defaults on these payments.

Tokio Marine said it was investigating the validity of insurance policies following investigations by German financial watchdog BaFin, and considered them open to challenge

The Japanese group pointed out that the $ 4.6 billion insurance policy was the total potential exposure, but its actual risk was significantly lower.

The company declined to comment on the extent of its exposure, but previously warned it expected pandemic-related overseas losses of 12.3 billion yen ($ 113 million) for the second half of fiscal year, which included losses on trade credit insurance.

Koki Sato, insurance analyst at Mizuho Securities, said that since Tokio Marine did not plan to change this focus after looking at the total amount of risk it faced, its losses on commercial credit insurance for Business transactions financed by Greensill would be in the order of 10 billion yen. . Other analysts predicted losses of up to 20 billion yen.

A large shareholder has already expressed concern about the risk to Tokio Marine of the Greensill collapse and demanded clarification from the Japanese company on what exactly it had insured, according to a person directly familiar with the matter.

Two other fund managers holding Tokio Marine shares, speaking on condition of anonymity, told the FT they were looking into the matter.

The concerns took on added urgency after Insurance Australia Group said Tuesday that it had “no net insurance exposure” to policies linked to Greensill and had agreed to transfer any exposure, net of reinsurance, to Tokio Marine upon the 2019 sale of its 50 percent stake in BCC .

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