The chief executive of the multi-billion pound Lloyd's of
London has publicly admitted that the world's leading insurance market is
prepared for a collapse in the single currency and has reduced its exposure
"as much as possible" to the crisis-ridden continent.
By Andrew Cave
2:50PM BST 27 May 2012
Richard Ward said the London market had put in place a
contingency plan to switch euro underwriting to multi-currency settlement if
Greece abandoned the euro.
In an interview with The Sunday Telegraph he also
revealed that Lloyd's could have to take writedowns on its £58.9bn investment
portfolio if the eurozone collapses.
Europe accounts for 18pc of Lloyd's £23.5bn of gross
written premiums, mostly in France, Germany, Spain and Italy. The market also
has a fledgling operation in Poland.
Lloyd's move comes as a major Franco-German provider of
credit insurance for eurozone trade, Euler Hermes, said it was considering
reducing cover for trade with Greece because of the risk the country might
leave the eurozone.
When a company goes bust, it is often sparked by
withdrawal of credit insurance for suppliers wanting to trade with it.
A spokesman for Euler Hermes, Bettina Sattler, told
Bloomberg: "The outcome of the new elections in June remains highly
uncertain. Consequently, the situation is further deteriorating. The risk of
Greece exiting the eurozone has been revived.
"In light of the recent developments, Euler Hermes
will most probably have to switch to a more prudent approach. [We have]
maintained a high level of cover for [our] customers until today. But now we
are confronted with a changing situation."
Lloyd's fears are likely to be shared by a number of
European businesses, which are watching developments in Greece.
On Saturday, Juergen Fitschen, co-chief executive of
Deutsche Bank, described Greece as a "failed state" run by corrupt
politicians.
"I'm quite worried about Europe," Mr Ward said
in one of the first admissions by a major UK business leader of the scale of
the crisis that would be prompted by a eurozone collapse.
"With all the concerns around the eurozone at the
moment, we've got to be careful doing business in Europe and there are a lot of
question marks over writing business in the future in euros.
"I don't think that if Greece exited the euro it
would lead to the collapse of the eurozone, but what we need to do is prepare
for that eventuality."
Mr Ward says Lloyd's had been working hard on contingency
planning and had the capability to switch settlement of European underwriting
from euros to other currencies.
"We've got multi-currency functionality and we would
switch to multi-currency settlement if the Greeks abandoned the euro and
started using the drachma again," he said.
Lloyd's has de-risked its asset portfolio in recent
years, with investments split equally into cash, corporate bonds and government
bonds, mostly in the US, UK, Canada and Australia. "We have de-risked the
asset portfolio as much as possible," he said.
The contingency planning comes as German politicians
piled the pressure on Greece ahead of elections on June 17.
A conservative member of German chancellor Angela
Merkel's cabinet said today Germany would not "pour money into a
bottomless pit".
On Sunday, Swiss central bank chief Thomas Jordan
admitted his country is drawing up an action plan in the event of the euro's
collapse.
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