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Tokio Marine defends governance over Greensill exposure

Tokio Marine, the main insurer to collapsed supply chain finance provider Greensill Capital, has defended its governance controls and disclosure on the Australian unit at the centre of the fallout.

In an emailed statement to the Financial Times, the Japanese group said that “prudent risk management, strong corporate governance and internal controls have been the foundation of Tokio Marine’s enduring success”.

But it added that its senior management was engaged in efforts to improve governance and control processes after problems were encountered at its Sydney-based subsidiary, the Bond & Credit Co, which provided billions of dollars of cover to Greensill.

The improvement efforts, which have not been described in detail by the company, come as analysts have questioned whether Tokio Marine and other large Japanese insurers have installed adequate controls at their international subsidiaries after years of expansion.

Last week, Lex Greensill appeared to blame Tokio Marine for his company’s downfall, telling British MPs that following intensive negotiations he found out that the Japanese group would not renew the policies just a few days before they expired in March. He told MPs that Tokio Marine’s move was “deeply regrettable” and “ensured Greensill’s collapse” later that month, though he admitted his company had become too reliant on one insurer.

Tokio Marine’s acquisition of BCC in 2019 was part of an aggressive, lengthy global expansion that included buying out Insurance Australia Group’s 50 per cent stake. IAG later said that it had passed its own Greensill exposure to Tokio Marine as part of that sale.

Last July, BCC was plunged into crisis when it dismissed an underwriter for allegedly exceeding his risk limits in relation to Greensill and launched an investigation into his dealings with the lender. It formally served notice that it would not be renewing Greensill’s main policies in September.

At an earnings presentation on Thursday, Tokio Marine’s chief investment officer Yoshinari Endo reiterated that it did not expect a material impact from Greensill in the financial year that started in April.

The insurer said in March it was studying the validity of the insurance policies in the wake of a regulatory probe into Greensill. Tokio Marine argues that its potential exposure to Greensill was limited because a significant proportion of the risk was covered by reinsurance.

“We plan to continue investigating the validity of the insurance policies,” Endo said. When asked why the company has not actively disclosed information to investors, he replied: “There is no major change to our understanding [of the situation] since March.”

Tokio Marine has come under heavy scrutiny in recent weeks. Analysts at S&P Global Ratings have said the situation uncovered “potential flaws relating to Tokio Marine Group’s governance and monitoring system for its overseas subsidiaries and deficiencies in BCC’s internal controls”, adding that they would “focus on the group’s efforts to fix these issues and deficiencies”.

Hideyasu Ban, an analyst at investment bank Jefferies, said that while Japanese insurers can implement certain controls, the Greensill incident meant that they should review not just their risk management levels but also how they educate employees of their international subsidiaries. 

“They have to step up the monitoring of their employees’ behaviour, especially in recently acquired companies who don’t necessarily know how Japanese companies work,” said Ban.

Another analyst said the incident was a “dent” on Tokio Marine’s acquisition record and that investors were nervous that problems could be lurking in other subsidiaries.

Tokio Marine investors have chafed at a lack of detail regarding reinsurance arrangements and what exactly the BCC policies covered. The Japanese group has said that it insured “accounts receivable” under Greensill’s supply chain finance arrangements but has not commented on whether it insured lending against so-called future invoices.

“Apart from accepting what they tell us, it’s hard to dig further,” said one large investor in Tokio Marine’s shares. “I don’t know what else we can do.”


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