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Australia’s IAG denies exposure to Greensill after share plunge

Australia’s IAG denies exposure to Greensill after share plunge

Insurance Australia Group said it had no “net insurance exposure” to policies sold to Greensill Capital on Tuesday in response to a 10 per cent share price slide on concerns over its links to the collapsed London-based finance group.

The Australian insurer told investors the sale of its 50 per cent stake in BCC, a Sydney-based trade-credit insurer, to Japan’s Tokio Marine in 2019 had eliminated its exposure to policies sold to Greensill, a supply-chain finance company.

The market update followed a trading halt announced by IAG on Australia’s stock market after its shares sold off on news that Greensill had filed for administration in the UK and Australia. IAG shares fell 49 cents to A$4.32 (US$3.31) in early morning trade.

IAG said it put in a place a transitional arrangement following the sale of BCC to Tokio in April 2019 that lasted until the end of June 2019, whereby the Japanese insurer retained the risk for any new policies underwritten, 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 [a subsidiary of IAG],” said IAG in a statement.

Shares in IAG recovered some ground following the market update, closing down almost 4 per cent at A$4.62.

IAG, Tokio Marine and the Japanese insurer’s wholly owned subsidiary BCC provided trade credit insurance to Greensill, whose implosion is threatening tens of thousands of jobs among its customers in the UK and Australia.

Last week, Greensill lost a legal battle aimed at forcing the insurers to extend two policies covering $4.6bn of working capital financing — a ruling that precipitated its collapse. Credit Suisse also froze $10bn of funds linked to the firm, depriving it of an important source of funding.

According to court documents released last week, Tokio Marine notified Greensill of its decision to stop coverage in July after it discovered that an underwriter at BCC had exceeded his risk limits, insuring amounts that added up to more than A$10bn. The underwriter was dismissed.

Tokio Marine has declined to comment on its exposure to Greensill. On Tuesday, its share price was up 1.7 per cent during the morning session in Tokyo, with investors yet to price in the risk held by the Japanese group. 

Nathan Zaia, an analyst with Morningstar, said the statement from IAG was reassuring and should help settle market concerns.

“On paper it looks like IAG should not be impacted, but this could still turn into a legal battle between IAG and Tokio Marine,” Zaia said.

However, the collapse of Greensill has spooked investors in IAG.

On Monday, John Hempton, a short selling hedge fund manager, published a blog post disclosing that he had written to Australia’s financial regulators three months ago to flag 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 “potentially a solvency risk” for the group in his letter to Australia’s prudential regulator Apra.

Hempton also cited the risk held by Japan’s Tokio Marine. Both companies could be in for a “world of pain”, he said.

Apra declined to comment on Tuesday.

Australian regulators have discussed IAG’s exposure with Greensill. They have also questioned Credit Suisse about its relationship with Greensill, including its financial exposure to the company and its role as adviser on a pre-IPO fundraising that was later cancelled, according to two people with knowledge of the discussions. 

Credit Suisse has appointed McGrathNichol as receiver to a Greensill company in Australia in a bid to secure its interests, including a $140m loan advanced to the finance firm last year.

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