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Victoria Mindova

Uncertainty is the main problem of the Greek insurance market today. It stems from a dangerous game that started as a public debt crisis and grew into a crisis of the euro. The role of the state in response to the macroeconomic challenges, like the foreign debt haircut, remains unknown. It became clear at the international business forum "The Future of Insurance in Greece - Poker or Chess?"

Insurers, bankers, businessmen, supervisors and government representatives gathered together and talked about all the pressing problems in private insurance and in the social security system, but the discussion did not touch, as if deliberately, upon the greatest problem in the industry today. What would happen to Greek private insurance companies’ capitalization and profitability if tomorrow the Greek government bonds were haircut by 50%, for example? Around one billion euros of the capital assets of insurance companies is in government securities. At the same time, the new restructuring of the Greek foreign debt is a reality after Prime Minister George Papandreou himself announced the idea, only the rate of decrease is unknown.

The uncertainty of insurers in the near future is due to long-accumulated problems, the most important of which is the lack of communication between the state and the private sector. "Stability and dialogue are always needed to develop something. Neither of them is present," said the General Manager of the Hellenic Association of Insurance Companies, Margarita Antonaki. She emphasized that the withdrawal of the state opens up room for private pension funds, but major issues in a broader plan must first be solved.

European leaders are increasingly talking about the immediate recapitalization and consolidation of financial institutions, but it is not clear where the money will come from. There are already partial solutions for banks like the Financial Support Fund in Greece or the Financial Stability Facility (EFSF) for the countries of the European Monetary Union. Private insurance companies do not have such a shield to guarantee them that the capital lost as a result of the 50% haircut of the debt will be replaced by auxiliary sources. Meanwhile, capital markets do not trust anything that has a Greek label.
 
"Greece will go bankrupt due to its promises for unsustainably high pensions," said, in warning, the Managing Director and Head of Global Demographics Department and Pensions Research of Credit Suisse Securities (Europe) Limited, Amlan Roy, to the European Commission in 2006. Apparently, no one took it seriously, because today bankruptcy threatens not only Greece, but it could also drag down the whole euro area. "To work more, retire later and, when the time comes, go and live in the countryside because the cost of living there is lower," is Amlan Roy’s advice. He is clear that most of the other developed countries are also faced with the Greek problem, and it could be solved simply by decreasing the level of pensions. They are not sustainable now and only further deepen the deficit problem in the state pension insurance. In connection with the ongoing changes in the Greek social security system, the expert said that it is not realistic for contemporary people to want to retire at the age of 50, to live 90 years on average, and to want a higher standard of living for the elderly.

The head of the Hellenic Association of Insurance Companies, Margarita Antonaki, supported this view, "We have to understand that we are in a new era in which we live longer. Once, people worked until they were 60 and died at 65. Now we have the good fortune to live longer, but new conditions require adaptation. The old standards no longer apply." She said that there was a substantial need for proper communication of the problem to the general public, especially in times of economic crisis, when changes must be made rapidly, as was the case now.

With or without macroeconomic woes, however, all specialists in the insurance market agree with the idea that the rules of the game have changed forever. "Business is no longer the same," stressed the financial giant BlackRock Solutions New York, which is now undertaking a thorough auditing of Greek banks. It will show in-depth resilience of financial institutions and the needs of reorganisation. The Managing Director of BlackRock said more broadly that companies and, even more so, the  people, who adapt more quickly to reduced liquidity and needs for greater savings, are those that will survive and be victorious after the crisis.

The CEO of EFG Eurolife Insurance, Alexandros Sarrigeorgiou, stressed that the monopoly of the state social insurance that has existed until now could not continue because it was unsustainable. "I would not like to be a politician today, because it is very difficult to explain to today's working people that they have to pay two bills. The first is for their parents, because state social funds do not have accumulated capital, and the second one is for the establishment of a second fund, which will be the base of their own pensions after a few decades." He explained that the crisis has led to reduced consumption and savings and, consequently, this has a negative impact on insurance companies.

The pressure on the pension system caused by the large number of pensioners and the decreasing number of the workforce also has a negative influence and requires change in the system. In addition, there is the effect of the shifting of capital from West to East, which stipulates that in the coming years a new period will begin, in which we will see a poorer Europe with more retirees and lower pensions.