Japanese underwriter Tokyo Marine has accused Greensill Capital of using “fraudulently obtained” insurance policies, firing the latest salvo in the battle over who pays for the collapse of the UK-based supply chain finance company.
Greensill collapsed last year after its insurance cover was canceled. The company, led by Australian financier Lex Greensill and backed by SoftBank, had used the insurance to guarantee that its borrowers would repay their debts. This allowed Greensill to sell on the debt, most of it to Credit Suisse, where it was marketed to end investors as almost risk free.
The implosion of Greensill has kicked off a global battle to recoup losses that run into the billions. Credit Suisse warned on Monday that legal action against insurers and companies that borrowed from its Greensill-linked fund could take “around five years”.
Tokyo Marine’s statement on Monday marked the first time since the March 2021 insolvency of Greensill that the Japanese insurer had formally accused its client of fraud.
It also provided confirmation that Greensill’s insurers would use allegations of misrepresentation as a critical defense against paying out on cover provided to the finance group.
The Greensill policies were underwritten by an Australian subsidiary of Tokyo Marine named The Bond & Credit Co. The Japanese parent group said it had found that “matters material to the underwriting of the policies were fraudulently misrepresented to BCC by Greensill”.
It added there was a “fraudulent failure” to disclose “material matters” before policies were agreed and extended and that the misrepresentations continued after Tokio Marine bought the BCC operation in 2019 from Insurance Australia Group.
“In light of those fraudulent misrepresentations and fraudulent breaches of an [insured party’s] duty of disclosure, Tokyo Marine has today advised counterparties that these policies and related obligations are void from inception, ”the insurer said.
The statement will come as a blow to Greensill investors, who see insurance claims as a way of recovering their losses.
The fallout from the Greensill scandal has highlighted practices at BCC, the underwriting business that provided it with the crucial insurance cover, that allowed investors to treat debts originated by the finance group as almost risk-free.
BCC’s Sydney office was once visited by former UK prime minister David Cameron, then an adviser to Greensill, underlining its importance to the company. When a BCC executive was fired in 2020 for exceeding his underwriting authority, Greensill’s main insurers pulled back and it failed to find cover elsewhere, triggering the group’s demise.
Tokyo Marine, which first publicly questioned the validity of the insurance in March 2021, continued to say it would defend itself against any claims, including Greensill-related proceedings in Australia against the IAG. People close to the Japanese insurer said the Greensill insolvency process created a likely “pipeline of claims” in the coming months and years.
IAG said on Monday it was continuing to “work together” with Tokyo Marine to defend the claims and it “maintains its position that it has no net insurance exposure to trade credit policies sold through BCC”. IAG has previously said it passed any exposure to Tokyo Marine as part of the BCC sale.
Greensill’s administrator declined to comment.
Credit Suisse declined to comment on the Tokyo Marine statement. In its own disclosures on Monday, it revealed it had clawed back $ 43mn in pay from employees involved in the supply-chain funds, 10 of whom were fired.
The bank was answering questions from shareholders, led by Swiss foundation Ethos, who were demanding a special audit into the bank’s failings on Greensill. The investors successfully campaigned to have Credit Suisse amend a vote at its annual meeting this month that would have absolved directors and executives for the Greensill scandal.