The private insurance sector in Greece has been seriously shaken and is facing the devastating effects of the triple blow of the recession, the new requirements for regulatory capital and of course, the Greek debt haircut (PSI).
Companies will now need to counteract losses from the programme for the exchange of Greek government bonds. On the other hand the insurance market will have to cope with the recent significant reduction in insurance contracts, regarding both general insurance and life insurance.
The unfavourable economic climate has led to a decline in new premiums, and in particular by 7.1 percent in 2011 down to 4.7 billion Euros from the 5.1 billion Euros in 2010. These data are evident from a study of the Hellenic Association of Insurance Companies with the participation of 61 insurance companies, which represent 96.3 percent of the total market. There are a total of 72 insurance companies in Greece, 22 of whom operate mainly in life insurance and 50 - in insurance "Damages”.
The PSI "blow"
It is estimated that the domestic private insurance market, which includes Greek and foreign companies, owned bonds worth 4.5 billion Euros before the introduction of the PSI programme. This assessment was made in October 2011 by Leonidas Teoklitos, head of the National Insurance Company, Deputy CEO of the National Bank of Greece and President of the Governing Council of the same bank. Therefore, it was carried out before the industry suffered damages of about 2.3 billion Euros.
And although private insurance companies hold a significant amount of government bonds, no decision was taken on their recapitalization after "pruning" the Greek government debt.
"Insurance companies, institutional investors, by their nature, hold in their wallets Greek government bonds and bonds from other Member States of the European Union, shares and other securities listed on the Greek or European stock exchanges or they hold real estate for own use or operation. These investments today are facing very serious problems, due to the reduction of their cost and lack of return on their operation", stresses for “Banker's Review” Mirto Hambaki, responsible for economic affairs and issues in the “Life” sector of the Hellenic Association of Insurance Companies.
For their part, insurance companies state that they were always willing to actively contribute to strengthening the Greek economy, and they did so once again with their participation in the PSI programme. Therefore they believe it is right "to satisfy the maximum demands of the insurance market so that it can be sufficiently protected."
The demands of the Hellenic Association of Insurance companies relate to three main issues: accounting, tax, and supervisory reporting of the Greek government bonds in companies’ portfolios.
When and how will losses be registered
With regard to PSI accounting, the Association of Insurance Companies has requested the gradual accounting of losses within 10 years.
"Unfortunately, these demands were not met because, according to statements by its officials the Ministry of Finance, cannot intervene in international accounting standards, but only in the Greek general accounting plan and unilateral intervention would lead to a disadvantaged position of the market" said Mirto Hambaki.
In this situation, the Association seeks alternative ways to amend the existing regulations so as to overcome this obstacle.
With regard to PSI tax reporting, the main request of the Association of insurance companies is related to the recognition of tax losses arising from the PSI, and the possibility of shifting the tax losses until their depletion. This request was granted by the relevant provision of Z.4046 / 2012, which permits the deduction of the loss in equal deposits from the gross revenues of the companies during the periods that follow until the maturity of the Greek government bonds available for exchange.
A question naturally arises in connection with the supervisory capital of insurance companies, especially after the strict requirements of the Solvency ΙΙ project.
Insurance companies have requested an extension of the duration of the special regulation for the assessment of Greek government bonds and of the financial 2012 one. The department for supervising private insurance in the Bank of Greece, which has now assumed the supervision of the Greek market, "has demonstrated a positive attitude for solving problems with supervisory PSI reporting. A statement is expected in the coming days", state representatives in the market.
Meanwhile, the inevitable limitation of social security in the country and the significant reduction of pensions has opened the way for the creation of supplementary pension funds, in particular for professional funds and "special programmes".
Significant is the statement of Alexandros Sarigeorgiou from EFG Eurolife Insurance, who said at a recent congress, that private insurance can and should act as a supplement to the state sector. "If there are no additional retirement savings, savings that will come only from granted tax incentives in the second and third pillar of the pension system (professional and private insurance), then future generations will face very serious problems with their survival".
The Guarantee Fund is on the verge of collapse
The guarantee fund of insurance companies is on the verge of collapse, as recent data show that its obligations exceed 700 million Euros and its annual revenues amount to about 72 million Euros.