Tokio Marine Faces Larger-Than-Expected Greensill Exposure

By Patrick Winters and Taiga Uranaka | March 19, 2021

Tokio Marine Holdings Inc. is facing a larger-than-expected exposure to the Greensill Capital meltdown after finding that reinsurance contracts intended to limit losses didn’t cover its unit that did the most business with Greensill.

Tokio’s Australia Bond & Credit Co. — which at one point wrote more than A$10 billion ($7.7 billion) of insurance policies for Greensill — isn’t covered by contracts with a key group of re-insurers, according to people familiar with the matter. A group of the companies, including Hannover Rueck SE and Scor SE, recently asked Tokio Marine to clarify the Greensill situation and were told by the Japanese company that their exposure is negligible, the people said, asking for anonymity to discuss a private exchange.

“We have reviewed this situation carefully, including our reinsurance position, and will continue to do so as needed,” Tokio Marine, which had previously declined to comment, said in an emailed statement. “On that basis, our expected net exposure remains unchanged, and as a result we don’t see any need to adjust our financial guidance,” it said. Spokespeople for the two reinsurers declined to comment.

Greensill’s downfall and the resulting scandal was triggered when the Bond & Credit Co. decided not to renew policies covering billions of dollars of loans Greensill made. The Japanese insurer had signaled that a significant portion of its remaining Greensill-related risk is covered by reinsurance, according to the Financial Times. A spokesman for Tokio Marine declined to comment on whether Tokio Marine has other reinsurance policies covering the Greensill risk.

Scor traded 1.3% lower as of 4:05 p.m. in Paris, paring earlier losses of as much as 2.4%, while shares in Hannover also reversed earlier losses of as much as 1.2% to trade little changed in Frankfurt.

The reinsurance contracts were purchased by Tokio Marine’s Houston-based HCC credit insurance unit. While it was intended that the deal would also cover Bond & Credit Co., the necessary approvals were never granted because of an internal lapse, one of the people said, without providing more details.

The validity of the reinsurance may have been challenged anyway, the people said. An underwriter at Tokio’s Bond & Credit Co. also acted “outside the scope of his delegated authority,” according to court documents filed in Australia. The firm dismissed Greg Brereton last July, the documents show.

Tokio Marine is examining the validity of the insurance policies it offered to Greensill, according to comments from a company spokesman earlier this month. He didn’t say why it’s questioning the insurance. The insurer maintained its profit forecast after reviewing transactions between the Bond & Credit Co. and Greensill.

Greensill’s Insurance Policies Questioned by Tokio Marine

Tokio may attempt to counter claims on the insurance since a probe by German financial markets regulator BaFin found Greensill Bank had booked claims for transactions that hadn’t yet occurred but which were accounted for as if they had.

–With assistance from Alexandre Rajbhandari.

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