By Evgenia Tzortzi

Following the merger planned between the National Bank of Greece and Eurobank groups, the linkup of their insurance activities will lead to the creation of a domestic insurance giant with premiums of over 1.1 billion euros out of a total of 4.9 billion euros in the local market.

Provided the two groups do become one, the subsequent insurance companies’ merger will create an indisputable industry leader whose market share will reach 22 percent.

It will comprise Ethniki Insurance and EFG Eurolife and have a strong capital adequacy following the NBG group’s recent decision to strengthen the capital of Ethniki Insurance up to 650 million euros. The first 500 million euros of the share capital increase has already been completed, restoring the capital adequacy of the NBG group’s biggest subsidiary, which had sustained heavy losses as a result of the haircut on Greek bonds, a part of the country’s debt restructuring program.

The recapitalization of Ethniki Insurance came before that of National Bank, while a similar move was made by the Eurobank EFG group, which strengthened EFG Eurolife’s capital by 27 million euros just before the end of 2011. A combination of tools were used for the Ethniki share capital increase, which included cash, bonds and mutual funds, while the coverage of the rest of the increase will be examined in relation to the further needs expected to stem from its adjustment to the Solvency II regulations of the European Union pertaining insurance companies. On the other hand, Eurolife estimates that last year’s increase will cover its needs and it will not require another capital boost.

Ethniki Insurance has about 800 employees -- not including some 200 staff leased from ICAP -- while Eurolife employs about 300 people.

Should the two groups merge, it will not be an easy proposition for their insurance arms, according to various estimates, due to the different mentality of the two insurers in terms of operations, organization and products. Eurolife draws a significant part of its clientele from the Eurobank network, which accounts for some three-quarters of its insurance activity, unlike Ethniki, which mostly relies on its own network of insurance brokers.

The scenario of the sale of one of the two insurance companies or of finding a strategic investor for the merged insurance group cannot be ruled out and remains on the agenda, given the high capital requirements of the new regulatory framework of Solvency II that will apply as of 2014. Still, trying to sell an insurer would be very difficult given the absence of interest in investment in Greece and the adverse prospects of the economy.