INSURANCE companies yesterday sought to downplay the possible impact on policy holders as a result of the deposits haircut.
Under a decree issued by the Central Bank, insurance companies are no longer exempt from a deposit haircut at the Bank of Cyprus (BoC) and the old Laiki.
Authorities had initially excluded various entities from the write-down but were forced to rethink after it became obvious that it would increase the losses on depositors who must chip in to recapitalise stricken BoC.
Several previously exempted categories will now incur a 27.5 per cent loss on their deposits over €100,000.
These include charities licensed by the finance ministry, and private schools registered with the education ministry.
But insurance companies will be hit with a 27.5 per cent hair cut on all deposits (from the first euro) as they are bound by different legislation.
To recoup losses, the companies might be tempted to raise premiums; but industry players are understandably wary of calling it one way or the other.
“There are so many different types of policies out there, and insurance companies’ money is invested in other assets other than deposits, such as real estate and so forth,” said Stefi Drakou, head of the Insurance Association of Cyprus (IAC).
“Plus, companies keep some of their money in foreign banks. It’s hard to determine how far they will be affected... it’s not one size to fit all,” she told the Mail.
Drakou said the previous decree exempting insurance companies from the haircut was the correct one, because it contained the hit to the banks.
“Now losses may spread to the whole of the financial sector, of which we are part,” she said.
Conventional wisdom has it that life insurance policies run the most risk of being impacted, since payments are made over a long period of time and usually come out of people’s savings. Less so for general insurance (or non-life insurance policies) such as automobile and homeowner policies.
IAC data for 2011 shows that the top five life insurance companies had premiums worth a combined €315m. Laiki Cyprialife’s market penetration stood at 29.1 per cent, followed by Eurolife 27.7 per cent, Universal Life 14.0 per cent, Metlife-Alico 6.9 per cent, and Prime 6.5 per cent.
Andreas Pirishis, vice-president of Atlantic Insurance (deals with general insurance) said the company took a “very minor hit” in bank deposits but this would not in the least affect either their solvency or robustness.
Another source in the insurance industry, wishing to remain anonymous, said she did not expect companies to increase their insurance premiums: “I really don’t think this is a good time for that”.
A day earlier, Universal Life, one of the largest insurance companies, said the haircut will have little effect on its investment funds.
The losses will not exceed 0.1 per cent, the company said, adding that it will cover the cost through its own capital.
Under the Central Bank's decree, insurance companies are no longer exempt from a deposit haircut at the Bank of Cyprus (BoC) and the old Laiki