Painful measures for insurance sector likely to be put off again

While the Development Ministry is stepping up the annual checks into the solvency of insurance companies, speculation is heightening as to the number of firms that do not meet standards. The inspection period officially comes to an end in two weeks’ time, and sources say more than 20 companies appear to fall short of the required solvency on the basis of 2001 figures. Indications are that the ministry will, as usual, exhaust its flexibility and will not revoke these firms’ licenses, postponing yet again the necessary measures for putting the sector onto a sound financial footing. Indeed, according to the sources, no revocation should be expected during a politically sensitive period. The most likely outcome is that the ministry will again oblige such financially precarious insurers to draw up restructuring plans, which, nevertheless, are considered of doubtful efficacy, if one goes by the experience of recent years. The lack of political will to tackle the problem of chronically insolvent insurers has been unmistakable for some time. The size of the problem becomes evident from an examination of the balance sheets of the approximately 70 companies that are based in Greece; last year total life premiums sank and profits took a serious downturn. This came on top of an approximately 20 percent fall in firms’ own capital, a trend which is intensifying this year due to capital losses in the stock market. Dramatic ROC fall A result of this trend has been a dramatic fall in firms’ return on capital (ROC) indicator, from 37 percent in 1999 to 13 percent in 2000 and just 1.8 percent last year. The overall market solvency ratio, which is the sum of firms’ capital divided by provisions, also fell from 27 percent in 2000 to 20 percent in 2001. The recent sharp fall in stock market valuations and the continuing uncertainty about economic recovery seem to be threatening even the big companies, which are expected to soon face the need for large increases in share capital. This will further decrease any likelihood of acquisitions of smaller insurers. Certain big groups have already carried out share capital increases, such as Aspis Pronoia, which is waiting to see whether the 64-million-euro injection from the absorption of subsidiary Aspis Investment will prove adequate. Interamerican has planned an increase within this month. Ethniki General Insurance, Agricultural and Phoenix have reduced their reserves, while European Reliance is restricting itself to lease-back methods as a temporary remedy. However, the longer the problem is left to grow, the future of the smaller operators that have not followed rational growth policies seems increasingly uncertain.