Euler Hermes safe from Greek crisis

Euler Hermes is largely safe from the sovereign debt defaults rattling investors, analysts say.

The trade credit insurer has seen its shares plunge 10% over the past three days, following fears that Greece is about to renege on its debt commitments.

But investors fears are unfounded, Societe Generale says, as the Allianz-owned company holds the vast majority of its bonds in the triple AAA/AA range.

Analysts from the French bank said: “The shares have massively underperformed over the past 3 days (-10%) on fears of debt defaults in general – and on sovereign debt in particular. 1/ Regarding sovereign risk Euler Hermes had (at end 2008) 96% of its bonds in the AAA/AA range. More generally speaking, Euler Hermes has the safest asset allocation of the insurance sector (the company does not want to take/add high risk on its assets side given that it has already taken corporate risk on board as its core operating business). Below AA represent only 4% of assets – i.e. €75m compared with its €1.85bn capital base.

"In addition the ‘safe cash' pocket represents a massive 25% of assets. 2/ Regarding corporate risk, recent statistical reports show a gradual improvement in the default trend. Coface saw a 10% decline in defaults in H2 2009 YoY vs a 19% increase in H1. In addition trade receivables have started to fall. We also note that rating agencies S&P and Moody's have revised end of 2009 their expectation of default at the peak of the crisis from 21% to 13% - flagging in addition Q3/Q4 2009 as the bottom of the default cycle.”