European Insurers Face WorldCom Losses

June 27, 2002

Most of Europe’s larger insurance companies have some exposure to losses resulting from the meltdown of WorldCom, the telecommunications giant which announced Tuesday night that it had improperly accounted for around $3.8 billion which should have been debited from its accounts.

Their exposure is on two fronts. Worldcom’s debt instruments were already rated as junk before the announcement, and can be bought for around 15 cents on the dollar, making the insurers loan participations and bond investments of far less value.

In addition many companies have investment portfolios which include WorldCom shares, which are now trading at around 83 cents. The following is a sampling of companies have given estimates, or made statements, on their exposures*:
AXA – $40 million gross, $20 million net; in addition its funds management unit has a10.9 percent stake in WorldCom, valued at $531 million.
Allianz – said only that its exposure was in the “low three-digit millions” of Euros.
Aegon – Around $200 million; it will set aside $268 million to cover potential losses.
Generali – Around $40 million in bonds, no equity exposure
ING – No comment so far, but analysts estimate it has $150 to $200 million in potential exposures
Prudential (U.K.) – around $150 million
Munich Re – around $80 million in debt and equity; WorldCom shares make up half a percent of its $160 billion portfolio, around $80 million.
Swiss Re – No comment, other than a statement that it only comments on losses having a “significant impact.”

Most European stock markets fell sharply on the new, led by banking and insurance stocks. Share prices recovered somewhat later in the day.

*The Euro has risen in value to near parity with the dollar. Some of the original estimates were given in Euros, but the difference in value is no longer significant.

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