Lloyd's of London preparing for euro collapse

[BurfordTJustice]

Lloyd's of London preparing for euro collapse
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.

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.