Tokio Marine says no material Greensill risk in new financial year

Tokio Marine said its exposure to the Greensill Capital collapse would not have “any material impact” on its coming financial year, as the Japanese insurer moved to dismiss market speculation that it was on course for a significant hit.

Tokio Marine released a statement on Tuesday in response to a 5.5 per cent fall in its shares on the previous day. The drop followed an anonymously-sourced Bloomberg report late last week which suggested that important elements of Tokio Marine’s exposure to Greensill were not covered by reinsurance contracts.

Until Monday’s fall, Tokio Marine shares had been little affected by the collapse of the London-based supply chain finance business earlier this month and its potentially large exposure to the debacle.

“Our expected net exposure remains unchanged,” Tokio Marine said in the statement, following an internal review of its Greensill-related risk. “We don’t see any need to adjust our financial guidance nor do we anticipate any material impact on our financials for the next fiscal year.” The company’s upcoming financial year begins in April.

Tokio Marine, which acquired Sydney-based underwriter Bond & Credit Co in 2019, said it continues to assess the validity of the insurance policies at the heart of Greensill’s downfall.

The company had maintained that its exposure to Greensill was limited since a large part of its risk was covered by reinsurance. But it had not previously discussed the impact for the new fiscal year that ends in March 2022. 

Hideyasu Ban, an analyst at Jefferies, said last week that the explanations offered by Tokio Marine appeared to make sense, but that it could also take some time before the full extent of the various claims and financial fallout from the Greensill collapse was revealed.

Tokio Marine’s stance is that the insurance covering Greensill could be void because receivables might not exist, said Ban, adding that if the underlying insurance was void, it did not matter whether or not the reinsurance was effective.

“If, via litigation, the court acknowledges the receivables existed, then Tokio’s losses could be bigger,” said Ban in an email, adding that the company currently did not have sufficient grounds to set aside reserves against such potential losses.

On the basis that Tokio Marine would maintain its guidance for the current financial year, analysts have said its losses on trade credit insurance for business transactions financed by Greensill would be in the ¥10bn ($92m) to ¥20bn range. 

Tokio Marine notified Greensill of its decision to stop coverage in July after it discovered that an underwriter at BCC had exceeded his risk limits, insuring amounts that added up to more than A$10bn (US$7.7bn). The underwriter was dismissed.