Euler Hermes sold business fraud policy to Greensill Bank

Euler Hermes, once one of Greensill Capital’s biggest credit insurers, has potential exposure to the failed supply-chain finance group through a policy covering its German bank against business fraud.

A unit of Europe’s largest insurer Allianz, Euler Hermes is one of the big three underwriters of trade credit insurance, and was a key provider to Greensill Capital until it had to pay a claim last year resulting from the default of former FTSE 100 hospital operator NMC Health.

The collapse of Greensill into administration in March has rocked the metals empire of Sanjeev Gupta, which was one of the company’s biggest borrowers. Lex Greensill, the founder of the eponymous company, told MPs last week that he had first met Gupta, whose companies are grouped together into the GFG Alliance, through an executive at Euler Hermes in around 2015.

Euler Hermes no longer has exposure to Greensill through trade credit insurance, Allianz’s group chief financial officer Giulio Terzariol said at its first-quarter results last week. But it did provide some so-called fidelity insurance, Terzariol said, adding that it had not “come into play”.

The Euler Hermes policy covers Greensill Bank, according to a person familiar with the matter.

Fidelity, or business fraud, insurance covers a company against financial losses caused by “intentional unauthorised actions” of trusted third parties. That includes the company’s employees, from the board of directors down, according to the insurer’s marketing material. 

In March, Germany’s financial regulator, BaFin, filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation, after a forensic audit by consultancy KPMG. The bank failed “to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance Group”, BaFin said.

In March, Germany’s financial regulator BaFin filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation © Fabian Bimmer/Reuters

Euler Hermes declined to comment, including on the size of the policy. Greensill Bank’s administrator Michael Frege, a partner at law firm CMS Hasche Sigle, declined to comment.

Bremen criminal prosecutors told the Financial Times that five former executives of Greensill Bank are under criminal investigation, and that their houses have recently been searched.

Greensill told MPs last week that there had been no criminal charges laid against staff of Greensill Bank. Under the German criminal code, potential suspects are only formally charged at the end of an investigation if public prosecutors file an indictment to a judge — this often happens months, if not years, after a probe begins.

On Friday, the UK’s Serious Fraud Office launched an investigation into suspected fraud at GFG including its financing arrangements with Greensill Capital. GFG has denied wrongdoing said it would “co-operate fully” with the probe.

The NMC-related claim paid by Euler Hermes last year was referred to by Greensill and the company’s adviser, former UK prime minister David Cameron, in their appearances before MPs last week. They gave it as an example of insurance working properly to protect investors from losses.

But insurance experts have told the FT that the string of client defaults suffered by Greensill last year, and the loss of Euler Hermes, were key moments in the lender losing support of the trade credit insurance market.

In April last year, Euler had the third largest exposure to Credit Suisse’s biggest supply chain finance fund, which packaged Greensill’s loans into investments, behind Insurance Australia and Japan’s Tokio Marine, according to a document seen by the FT. At that point, Euler underwrote 12 per cent of the credit risk in the $5bn fund.

The other two of the big three trade credit underwriters, Coface and Atradius, never insured Greensill, according to people familiar with the matter. Greensill’s business model ultimately collapsed after it failed to replace Tokio Marine, which told Greensill in September 2020 that it would not renew its cover.

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