Insureds and carriers face immediate dangers from Grexit warns lawyer

A Grexit looks increasingly possible ahead of Sunday's Greek referendum on terms offered for the country's debt repayment. CMS warned the move would hit domestic Greek insurers, international carriers and their corporate clients. It said that a Grexit could place euro liabilities supported by a new Drachma at risk of default. Claims, particularly D&O, are predicted to rise as financial institutions suffer further losses, it added. Furthermore, Greek insurers' reserves would be hit and rendered potentially deficient against risks in other eurozone countries upon introduction of a new Drachma, the firm continued. "It's time to begin thinking the unthinkable," said Stephen Netherway, Partner and Head of the FIS Insurance Sector at CMS London. "The insurance market has taken a back seat while credit issues dominate discussion over a Grexit. But now as we wait for the referendum, the [insurance] industry will be advised to make all preparations necessary."hideHe pointed out that insurance policies are a form of commercial contract. "All commercial contracts with a Greek substance would be hit by the Grexit," he said. "Everything from the interposition of an exit date into ongoing contractual arrangements to the problems of an asset/liability value mismatch is on the table. Both Greek insurers and their international counterparts could have a lot of work to do if Sunday's referendum results in a 'no' vote," said the lawyer. Deciding whether to pay claims on existing contracts in euros or new Drachma and calculating resultant loss figures would cause severe headaches and create legal uncertainty, said the expert. "Many obligations may remain in euros, yet others may become subject to the new Drachma," said Mr Netherway. "It is reasonable to suppose at this stage that policies expressed to be governed by Greek law, with their construction to be determined by Greek courts, will have new Drachma applied; yet policies placed in the international market, considered by non-Greek courts, may well have euro obligations affirmed." As an example, he said that reinsurance contracts governed by English law and jurisdiction can expect to have a premium payable in euro, but the likely outcome is a currency clash and value disconnect between premiums in and out. "If an English court gave a judgment in Sterling or other international currency, and there was the new Drachma, what market exchange rate would be applied-just how would an English court calculate the amount to be paid?" he questioned. Mr Netherway also warned that a Grexit could affect a 'huge number' of international insurance markets. Political risk and trade credit lines are already feeling a squeeze, he said. D&O liabilities could emerge as financial institutions struggle under the pressure of falling share values and bonds, he continued. Claims could be made for losses against currency devaluations, travel, PI & civil liability and even public offering securities insurance, he added. Mr Netherway said that a new Drachma would likely drop rapidly in value against the euro. As a result premium payment liability will increase for Greek insurers along with the risk of default and policy cancellation. "Greek insurers' assets and reserves will most likely be converted into new Drachma. They will have a significantly reduced value; instantaneously a value mismatch will crystallise against risks that remain assumed, where none before existed," he said.

Insureds and carriers face immediate dangers from Grexit warns lawyer

Want to read this article?

Read Next

Alternative solutions and specialty drive Scor’s Q1 growth

US commercial lines sector combined ratio increased to 96.2% in 2023

New head of US cyber at Beazley

US cyber market sees lower pricing and fall in premiums: Fitch

AXA XL names new client and distribution officer in APAC and Europe

Alternative solutions and specialty drive Scor’s Q1 growth

US commercial lines sector combined ratio increased to 96.2% in 2023

New head of US cyber at Beazley

US cyber market sees lower pricing and fall in premiums: Fitch

AXA XL names new client and distribution officer in APAC and Europe

Want to read this article?

Read Next

Alternative solutions and specialty drive Scor’s Q1 growth

US commercial lines sector combined ratio increased to 96.2% in 2023

New head of US cyber at Beazley

US cyber market sees lower pricing and fall in premiums: Fitch

AXA XL names new client and distribution officer in APAC and Europe

Related Articles