Insurance companies ditch bonds for T-bills

The insurance sector has stopped investing in state bonds since incurring huge losses as a result of the private sector involvement (PSI) in the Greek debt swap earlier this year.

Insurance companies? investment in state bonds has dropped to under 1 billion euros, from the 5 billion that was in their portfolios before the debt crisis came to a head.

The most recent data from the firms show that the assets of the insurance sector?s investment portfolio in Greece amount to 13.8 billion euros, with 950 million euros in Greek state bonds. The latter are the bonds that the insurance firms received in the context of their involvement in the Greek debt restructuring program, while they also have 450 million euros? worth of bonds from the European Financial Stability Facility.

As a result, bonds make up no more than just 6.5 percent of insurance companies? portfolios, against 50 percent just a couple of years ago. Notably, the 950-million-euro figure is the nominal value of the bonds swapped, and their current value is much smaller.

The data also show that the majority of insurers have turned to treasury bills, which offer yields of about 4.50 percent, while some have ditched Greece for good, investing in foreign state bonds from countries such as Germany, the Netherlands and France.

A large share of the investment portfolio is taken up by time deposits with high interest rates, often over 5 percent, which constitute the primary choice for the whole of the insurance market.

The total loss that the insurance sector suffered due to the PSI reached up to 1.3 billion euros, of which 300 million affected the market?s small and medium-sized players which are not members of bank groups or subsidiaries of multinationals.

The Bank of Greece has adopted a favorable settlement clause to cover their losses gradually over the next three years. The clause provides for the new bonds that the companies hold after the debt restructuring to be valued this year at about 65 percent of their value, while next year the definitive valuation of portfolios will take place incorporating the full loss of Greek bonds to 55 percent of their value, which is the haircut rate applied through the PSI.

Already many insurance companies have announced their intention to proceed to share capital increases, in the context of the need for the recapitalization of the sector. Market leader Ethniki Asfalistiki is among them, and its capital requirements are calculated at 390 million euros. Agrotiki Insurance, which has entered Piraeus Bank Group, is expected to get a capital increase of 250 million euros.

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