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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?

First, let me emphasize that the cooperation between private insurance and public clinics has been our goal for a long time and signing this contract is a positive step. On the other hand, there are not so many vacant beds for the moment. Hippocrates Hospital, for example, provided us with only two beds and there are a few more than twenty at Evangelismos. This will not enable us to offer insurance products that would turn our trade policy to the services provided by these hospitals. The number of beds is small and we do not know whether there will be vacant beds in case of need. 

Currently, the contract for 560 beds in public hospitals is the first step in a positive direction and I hope that this number will increase in future. I even think that a large public hospital could be provided for the use of private companies. If it happens, it would mean that we have decent hospital beds in fine rooms, and our customers will be able to access good health specialists who are working in public hospitals now. This entire package will help us make a good insurance package with a lower value, because if we have to be honest the cost of hospital beds in the public sector is higher than the price of the same product in the private sector now.

Doesn’t this mean sacrificing quality for the sake of price?

No, this is not sacrificing quality for the sake of price. What we want is not only good doctors, but also hospitals that have adequate capacity, the appropriate infrastructure and quality facilities. Public hospitals currently have an excess capacity of beds, which, instead of being unused could be given to private insurance companies.

The insurance company Eurolife is part of the corporate group of Eurobank, which has a very large and well-developed network of offices in Bulgaria. Why does the insurance company you represent have a representative office in Bulgaria?

This is a matter of interest to us and it is in our future plans. But it is still a matter of managerial capacity in the sense that we had to do many things in Greece, many of which we have done. For better or worse, we have settled in Romania and Bulgaria in our immediate plans. Unfortunately, the crisis has come and slowed us down.

The Bulgarian insurance market is of very great interest to me and I believe there are many positive prospects for development. Of course, this is a small market, like the Greek one, but it does not really matter.

The problem with those insured with Aspis Pronia has been ongoing for two years already. Their insurance company failed, its president went to court, but it is not yet clear if the people will be able to recover their savings. What do you think will be the fate of the victims of the bankrupt company?

I cannot comment on this issue. This is exclusively a state responsibility. The only thing I could stress is that for many years the state has been exercising insignificant control, which has led to the familiar events that occurred in the particular company.

For many years, private insurance has been suffering from the actions of this company, which hurt the entire sector. The bad reputation it has brought private insurance requires the state to intervene and put an order in this case. No private insurance companies should have to resolve the problems created by Aspis. Of course, we would like this story to end because this would restore the reputation of our industry, but the problem with Aspis is not the insurance companies’ fault in general. Things are dangerous when there is no serious control.

In this sense, I would like to emphasize that we were, and are, "for" the establishment of a strict supervisory authority, the role of which is currently being played by the Bank of Greece. It has assumed an extremely important and hard task which it is good at and it has to bridge gaps, accumulated for decades. All major players in private insurance need serious supervision. Moreover, the time has come to introduce new standards for capitalization and asset quality according to the European directive on Solvency II and the options for any other practices are exhausted.

Earlier in our conversation, you said that the Greek insurance market is quite small. However, it has more than 70 insurance companies, most of which are small. Do you think that changes in the market are needed and should we expect mergers between insurance companies, as in the banking market?

Mergers are inevitable.

How do you see the future of the Greek insurance market in five years?

I would say I am optimistic. Currently we are going through a very serious crisis that will lead to an earlier consolidation of the Greek market. Those who will remain on the market after this crisis will be serious and long-term players. With Solvency II rules and serious supervision by the Bank of Greece, the insurance market will have restored consumer confidence. On the other hand, there is a great market opportunity that will develop in the next 10 years and this is pensions. Private pensions will play an important complementary role in the second and third pillar of social security. In this context, I mean that only about 2% of Greeks have a private insurance programme while the average index for Europe is 8.5%. The combination of these indicators with the exercise of reliable control allows for a better future. Meanwhile, we have to overcome the turmoil.