1 November 2012

The Greek Government has recently announced a number of changes to the Greek Motor Guarantee Fund (MGF); the relevant legislation has not been published yet. These include a 1% rate increase to the MGF charge, a one-off MGF enrolment fee of EUR50,000 for insurers writing Motor Third Party Liability (MTPL) and a minimum annual contribution of EUR10,000 to the MGF. The changes could be implemented as early as 1 November 2012.
 
Taxation Changes
 
The MGF shall be levied at a new rate of 6% on the gross premium of any Greek or FOS insurer.
 
Previously, insurers were required to pay a 5% levy on the net premium only (i.e. exclusive of policy fee which was typically charged at 20% - 35% of the net premium). Therefore, the change in law has considerably widened the taxable basis as well as increasing the rate of the levy.
 
Two further amendments were announced;
  1. All insurers writing MTPL in Greece shall pay a one-off enrolment fee of EUR50,000. This will be a requirement for all new entrants to the market as well as a requirement for existing insurers.
  2. The minimum annual contribution to the MGF will be EUR10,000. Based on our current understanding of the law, by way of an example, an insurer writing EUR2,000 of gross premium (net premium + policy fee) per annum will be required to pay MGF of EUR10,000 which is made up of EUR120 in MGF levy (EUR2,000 x 6%) + EUR9,880 top up. What is unclear at present is whether the EUR10,000 minimum should be paid annually in advance (akin to the Italian prepayment) or whether it should be paid at the year-end if the levy collected falls below the minimum threshold. A third interpretation of the law is that the minimum EUR10,000 should be paid in addition to any actual MGF calculated by reference to premium written.
Although still unclear, the effective date of these changes could be as early as 1 November 2012.
 
In light of this change in legislation, insurers especially those that write small amounts of motor third party liability business in Greece, such as captives, may need to consider the commercial rationale for continuing this insurance activity.
 
Background to Changes
 
The MGF was established many decades ago with the purpose of indemnifying those that had suffered damages from an uninsured or unknown motor vehicle.
 
The MGF fulfilled an additional important role: it became the ‘obligatory’ insurer of all vehicles whose insurance company ceased operating (except in the case of a smooth run-off), for a period of 30 days after the halt of operations (for example due to default, revoking of operating license etc.), allowing insured parties to find a new insurer in this 30-day window. Furthermore the MGF was also used to cover the outstanding MTPL claims of those insurers which had ceased operations.
 
Since 2010, the MGF has been in facing serious financial problems: the rapidly increasing number of claims picked up from defaulted insurers, increased payments per claim due to the recently increased insured amounts available to victims and the reduced numbers of MTPL insurers (due to the Greek Financial Crisis) which reduced MGF’s income and threatened the survival of the MGF.
 
Consequently the Greek Government has taken action and passed a law last week with the objective of improving the financial standing of the MGF.