Insurance Australia Group (IAG), a primary insurer to Greensill Capital, has alleged that the failed lender deceived German regulators in an effort to reduce the capital requirements of its Bremen-based unit, according to a court filing.
Investors of Greensill are suing IAG over claims for credit insurance payouts to cover loans extended by the failed lender and then packaged up for investors. IAG said the defunct supply-chain finance group had concealed the fact that it had agreed to fund its own insurance claims when it presented a credit insurance guarantee to the regulator. The group said the move was “intended to deceive the regulator and was fraudulent.”
Among the entities suing insurers as part of key proceedings in Australia is the administrator for Greensill Bank, the group’s German banking unit and the holder of the insured notes. IAG said the insurance offered on its behalf was invalid.
According to a Financial Times report, in 2018, Lex Greensill, the Australian financier who ran the group, approached its key underwriter, Greg Brereton, to propose an arrangement to allow Greensill Bank to use credit insurance as a risk mitigant under local regulations. With this, according to IAG, should Greensill Bank need to claim on its credit insurance, Greensill Capital would allegedly advance funds to BCC, which would then pay the amount to the German banking entity in five days. This would then be formalized through an extension to the policy that IAG notes was “silent as to the proposed funding arrangement” and was agreed upon without seeking its consent.
In April 2019, Lex Greensill requested Brereton to confirm the arrangement in a letter to be shared with BaFin, the German financial watchdog just days after Japanese insurance group Tokio Machine announced its acquisition of BCC, according to the court filing. IAG said Brereton provided the letter.
People with knowledge of the matter confirmed the letter was shared with the regulator; however, they said there was no agreement between BCC and Greensill Capital disclosed.
IAG said in the court filing that Greensill’s conduct was “likely to mislead Greensill Bank’s regulator that [IAG] had agreed to pay claims within 5 days when it had not and involved the deliberate hiding from BaFin that GCUK was in fact funding any claims payment.”
“The proper inference in the circumstances is that the conduct was intended to deceive the regulator and was fraudulent,” it added.
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