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Victoria Mindova

Greek debt crisis is threatening to become the worst systemic risk the euro area has ever taken. George Papandreou’s government has a saving remedy for the banks, but private insurance companies appear to be left adrift. Many people in Greece are afraid they may lose their savings.

The CEO of the insurance company Eurolife EFG and Chairman of the Life, Health, Pensions & Bancassurance Committee at the Hellenic Association of Insurance Companies, Alexandros Sarrigeorgiou explained for GRReporter, that the companies in the sector are prepared for possible turmoil. The debt haircut will activate recapitalization and a chain of mergers in the insurance market. From the conversation, it became clear that if Greece did not fall into the abyss of uncontrolled bankruptcy, after the crisis, the country would have fewer but stronger insurance companies, which will operate in a more secure environment.

Before the crisis, government bonds were considered one of the safest tools for medium- and long-term investment. Today, Greece is on the brink of a debt haircut that could reach 50%. This could seriously affect the balance of local insurance companies. What is the action plan of the Greek companies in the sector in this case?

The debt haircut and the use of the debt crisis affect not only Greece but also local companies. However, we could say that this is a European phenomenon too. What most companies need in the situation of debt haircutting is more capitalization. This means that not only the shareholders, but also the system itself has to take measures to respond to the situation.

Greece’s macroeconomic problem is serious and defines the behaviour of real business. Could you explain in detail what the consequences of a serious debt haircut would be?

Greek insurance companies are greatly exposed to government bonds and the loss after a major debt haircut will be large. I would like to emphasize that not all insurance companies in the country have the same exposure to Greek government bonds in their portfolios. Some of them have changed their investment policy and the profile of their portfolio, so I think it is dangerous to draw general conclusions for all companies in the sector. Each has a different technique to cope with the crisis and ultimately every company has a different opportunity to recapitalize in order to cope with potential losses, if necessary.

Banks are able to turn to the Fund for financial assistance if they cannot raise capital from other sources, i.e. if opportunities to increase the equity capital, for example, are exhausted and a new key investor cannot be found, there is a state mechanism that will save them from bankruptcy. Is there such a fund for the Greek insurance companies to help them in case of drastic cuts in the value of Greek government bonds?

No, there is no such a fund. In my personal opinion, such a mechanism should exist. What is heard, without any official statement yet on the matter, is that ideas in this direction are under discussion.

Will insurance companies be able to survive the debt crisis without such an assistance fund?

This is a systemic issue and I cannot comment on it, but after a disastrous reform in the balance due to the sovereign debt crisis, the sector certainly will need capital. Where the capital will come from is another matter. The state should examine systemic risk very carefully and in particular, it should find out whether the insurance sector needs help.

I think that the insurance market should be secured as the banking market in Greece is secured. I do not mean individual companies, but reaching a common solution for the entire sector and capitalization issues in case of need.

What are the specific implications on the economic crisis in your sector?

The main problems very clearly affect the sector results in the first half of this year. We have a 9% decrease in sales in the sector in the first half, compared with the same period last year. There is a sizable reduction in traditional insurance, which is about 22%. For the first time we see a reduction in general insurance.

Therefore, the first indicator of the effects of the crisis is the decline in sales; the second is the purchase of insurance earlier than maturity. I would like to emphasize that the purchase of insurance has increased, but not in alarming proportions in comparison with stocks. People are withdrawing their money, because obviously they need it now, not for any other reason. The third indicator of the effects of the crisis is the collection rate. Like other sectors of the economy, the collection of overdue payments is very difficult.

You argue that the problem with the purchase of insurance is not so serious. So, what are your expectations for the near future?

If there is no problem in the system as a whole, which we all hope is the case, the purchase of insurance contracts is not dangerous for the sector. The fact that their number has increased so rapidly, should disturb us, but we all understand why it is happening.

Obviously, the pace of buying insurance contracts has increased because of the economic crisis and lack of liquidity. Meanwhile, insurance companies signed a contract last month for the use of 560 beds in public hospitals. Would you tell us how your customers would benefit from this arrangement?