Insurance companies in Greece will have to find additional capital after the 53.3% write-off of the net present value of Greek government bonds under the PSI procedure. Unlike the banking sector, which can rely on funds from the Financial Stability Fund, Greek private insurance companies have no access to state support. Besides the problems occurring due to the economic crisis and PSI, insurers in Greece are facing the payment of significant compensations after the arson in downtown Athens on 12 February. The General Manager of the Hellenic Association of Insurance Companies Margarita Antonaki speaks to GRReporter about these and other problems in the insurance market.
How has the PSI affected the Greek insurance companies?
The Greek insurance sector proved its willingness to actively contribute to the Greek economy bail out by participating in the restructuring of the Greek debt. The total amount of Greek State Bonds held by the Greek insurance sector is estimated at 3 billion euro. Therefore, by participating in the PSI the Greek insurance sector will indeed suffer from losses. The major issues that insurance undertakings are concerned with in relation to their participation in the PSI refer to the accounting, tax and supervisory treatment of the Greek State Bonds portfolio. The Hellenic Association of Insurance Companies has notified the Greek Ministry of Finance as well as the Bank of Greece (supervisory authority) on the insurance sector’s specific requests on the aforementioned issues. The tax treatment requests have been partially satisfied while the accounting and supervisory issues are yet to be solved. The Hellenic Association of Insurance Companies continues its efforts towards the fulfilment of additional tax requests as well as the extremely important accounting and supervisory treatment issues.
Is there a plan for how the state can help with the recapitalization of the insurance companies, which will loose from the debt reduction? Under what conditions will this happen?
Unlike the banking sector, which is supported by the Financial Stability Fund, there is no such provision for the insurance sector at European level. As a result, the Greek State will not support the recapitalization of the insurance companies participating to PSI.
The Greek crisis negatively affects the public pension and health funds. How can the private insurance sector support the health and pension system in times of crisis?
The circumstances are now mature for a deeper involvement of private insurance in the health and pension system. The significant shrinking of the social insurance system and its inability to retain current benefits in order to adequately respond to the Greek citizens' needs, the dramatic demographic changes (increasing life expectancy and reduced fertility resulting in an aging population and an increasing number of retired persons) and the serious fiscal problems of the Greek State reinforce the need for alternative sources of retirement income based on private initiative. Citizens, albeit with a reduced income, realize that they can no longer count solely on the State regarding their pension and health needs and that they must look forward and seek solutions. The insurance sector has the necessary expertise and experience to support the pension and health system. The Association has submitted concrete proposals for the supplementary role of private insurance in professional and private insurance and requests the beginning of a constructive dialogue with the Government to find solutions that are beneficial to all parties and especially to Greek society.
What are the specific implications of the economic crisis in your sector?
The insurance sector - closely attached to real economy - could not remain unaffected by the financial crisis and the recession. Nonetheless, insurance companies in Greece have so far coped satisfactorily with the crisis. In 2011, there was a 6.8% decline in the total premium production (7.7% in life insurance business and 6.2% in non-life). Other signs of the impact of the financial crisis are the increase of the surrenders as well as the fall in the insurance companies’ value of investments.
In the last two years Greece and especially Athens has felt the pressure of the constant social riots. On 12 February this year were burned more than 170 buildings, 40 of which were completely destroyed. Does the regular fire insurance cover the damage from the riots? What is the total sum that insurance companies need to pay for the riot damage?
It depends on the contract but usually riots are a special cover not included in the standard fire insurance covers. With regard to the damage in February 2012 and according to the first results of the Association’s survey, the insurance sector had 252 announcements of damage. The total amount of compensations is estimated at 25 million euro. It is noted that according to the Athens Chamber of Commerce and Industry, the total amount of the damage of 12 February is estimated at 50 million euro. Taking into account these estimations it is concluded that the insurance sector will cover half of the total damage amount.
The Greek insurance market is not that big and nevertheless, there are around 70 insurance companies nowadays. How do you think the market will change in the coming years?
In the near future, the implementation of Solvency II will pose strict rules to insurance companies at European level both in capital requirements and corporate governance. The environment in which insurance companies operate will become much more demanding at all levels. In this framework, the prospect of mergers and acquisitions in the insurance sector is quite possible.
Bancassurance has earned a bigger market share lately because of the low operative cost. Do you think that this type of insurance is going to gain more ground than the Traditional Insurance Model?
Bancassurance is a distribution channel through which some insurance companies do business with the aim of promoting standardized insurance products at a lower price. The same applies to direct sales (online) that are successfully used by some insurance companies. Alternative channels like bancassurance and direct sales are expected to gain ground in the future. In Greece, the growth prospect for insurance remains quite large comparing with the European Union averages, so in my opinion there is room for development for all distribution channels as every channel has its specifications and its pros and cons.
The problem with Aspis has not been solved for almost three years now. What will happen with the people who had their money invested there and is there a mechanism put in place to prevent incidents like that from happening from now on?
The only way to avoid unfortunate incidents like Aspis is prudential supervision. The insurance sector is now being supervised by the Bank of Greece, a prestigious authority that poses strict rules to insurance companies operating in Greece with the aim of shielding the solvency of private insurance.
With regard to the Aspis issue, the proceedings are clearly subjected to the Greek State. According to our briefing, the procedure is in progress and the announcement regarding the quest of a contractor for the transfer of the Aspis portfolio is expected soon.