Trade Credit Insurance Products - Aman Union · Whole Turnover vs. Selected Cover vs. XoL 12 •...
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Trade Credit Insurance Products Robert Nijhout 1
Transcript of Trade Credit Insurance Products - Aman Union · Whole Turnover vs. Selected Cover vs. XoL 12 •...
Trade Credit Insurance Products
Robert Nijhout
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About ICISA
● Founded in 1928 (as ICIA)
first credit insurance association
● Registered under Swiss Civil Code
● Name changed in 2001
● Secretariat based in Amsterdam
● Activities:
Networking: Meetings, Conferences, Workshops
Advocacy & Media Relations
Marketing
Market Research – data collection
Education & Training (STECIS Training Academy)
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ICISA Members – 48 Members
Afianzadora Latinoamericana Hannover Re
Allianz SE HCC International
Askrindo ICIC
Aspen Re Lombard Insurance Company
Atradius Mapfre Caución y Crédito
AXA Assurcredit Mitsui Sumitomo
AXA Winterthur Munich Re
AXIS Re Nationale Borg
Catlin Re Novae
CESCE PartnerRe
China National Investment & Guaranty PICC Property and Casualty Company
CLAL Credit Insurance PRISMA
Coface R+V
COSEC QBE
Credit Guarantee SACE BT
Ducroire | Delcredere SCOR Global P&C SE
ECICS Seoul Guarantee Insurance Company
Euler Hermes SID-First Credit
Fianzas Atlas Sompo Japan
Fianzas Monterrey Swiss Re
Garant Tokio Marine & Nichido Fire Insurance
The Guarantee Company of North America Tryg Garanti Groupama Assurance-Crédit Zurich
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Organisation
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President
Vice-President
Executive Director
Management Committee
Committee on Management Issues
Accounting & Regulatory Committee
Committee of Underwriters
Credit Insurance Committee
Single Risk Committee
Surety Committee
Asia Sub-Committee
Solvency II Expert Group
Secretariat
Communications Contact Network
Crisis Team
Meetings
• Annual General Meeting (AGM) (June)
• Spring Meetings (March)
• Autumn Meetings (September)
(technical committee meetings)
• Project Meetings
• Ad Hoc Meetings
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ICISA Membership Structure Membership
Credit Insurance Companies (= >95% of private c.i. market)
Surety Companies
Reinsurance Companies
32 Credit Insurance
34 Surety
14 Reinsurance
Credit
Surety
Reins.
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ICISA Members Geographical Spread
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Association Networking
● AMAN UNION 2 shared members
● ALASECE 4 shared members
● BERNE UNION 7 shared members
● PASA 22 shared members
● SFAA 6 shared members
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Advocacy Partners
• European Union:
• European Commission
• EIOPA
• ECB
• Insurers of Europe
• IASB
• ICC
• OECD
• World Bank
• UNCITRAL
• Media
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Types of Cover
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Types of Cover
• “Domestic” is just another country
• Commercial vs. Political Risk
• Whole Turnover vs. Single Risk Cover vs. XoL
• Credit Risk vs. Pre-Credit Risk
• Short-Term vs. Medium Term
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Whole Turnover vs. Selected Cover vs. XoL
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• Whole turnover policy
Covers seller’s total credit sales
Cover usually for 80-90%
• Single Risk Cover (single buyer cover)
Cover for all sales to one debtor
or
Cover for a single contract with one debtor
• Excess of Loss (XoL)
Cover in excess of amount of first loss borne by the
insured
First loss / threshold
• Prospecting
• Negotiation about payment condition
• Risk assessment of buyer
• Monitoring of buyer
• Debt collection on buyer
• Loss minimising
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Additional Services
Trade Credit Insurance
vs.
Financial Guarantee
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A Financial Guarantee is understood as comprising any bond,
guarantee, indemnity or insurance, covering financial obligations in
respect of any type of loan, personal loan and leasing facility, granted
by a bank/ credit institution, financial institution or financier or issued or
executed in favour of any person or legal entity in respect of the
payment or repayment of borrowed money or any contract transaction
or arrangement – the primary purpose of which is to raise finance or
secure sums due in respect of borrowed money.
By way of explanation, the purpose of this definition is the avoidance of insurance cover for any financial obligation which does not arise from or relates to a trade transaction defined as the supply of goods and/or rendering of services.
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Official ICISA Definition - Financial Guarantee
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Credit risk analysis of the specified
client (same as a loan)
Based on the historical rate of default of
the prospect + on the historical rate of
default of the trade sector + on the
contribution to the diversification of the
portfolio + anticipation of the state of the
economy
Pricing at inception
Coverage of a specified Client (debtor)
for a specified amount and a specified
lengh of time
Coverage of the overall turnover 1°)
Future turnover not known at inception =>
premium not known 2°) Short term (90
days) revolving receivables => identity
and exposures not known
Covered Asset
Arranged at the request of the party
whose obligation is being guaranteed
Holder = debtor ≠ beneficiary
Protects the seller of goods against the
default of his client Holder = beneficiary ≠
debtor
Nature of the customer
Financial guarantee Trade Credit insurance
Trade Credit Insurance vs. Financial Guarantee (I)
Loan to the holder with additional
interest revenue
Indemnity settled to the insured with
subrogation on the receivable. No
additional revenue
Settlement
Arbitrage possible for the holder
against other debt instrument
(depending on negotiated interest rate
at inception of the financial guarantee
and the interest of his rating in the
market at the date of the arbitrage)
Outside the control of the insured Credit event
Line by line solvency assessment Estimate of future cash flows of the
portfolio Subsequent measurement
Financial guarantee Trade Credit insurance
Trade Credit Insurance vs. Financial Guarantee (II)
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ICISA Trade Credit Insurance Members Results 2011
• Premium: € 5.961 million
• Claims: € 2.615 million
• Claims Ratio: 43.9%
• Insured Exposure: € 1.658 billion
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Trade credit insurance
premium, claims & claims ratio ICISA Members* (excl reinsurance members)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Claims Ratio in % Amount in EURO
Mil
lio
ns
Premiums
Claims
Claims Ratio in %
Trade credit insurance
Insured Exposure ICISA Members* (excl reinsurance members)
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0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2005 2006 2007 2008 2009 2010 2011
Bill
ion
s
Insured ExposureTrade Credit Insurance
Market Penetration development
Source: Swiss Re
0.00%
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
0.07%1
99
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
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Pre
miu
m V
olu
me
in
% o
f G
DP
USA Canada United Kingdom Germany France
Italy Switzerland Spain Austria
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Development of average premium rates
Index 100 = 2003 Source: Swiss Re
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Lessons learned from the crisis
● Trade credit insurance is cyclical, driven by the economic environment
● Mitigate negative impact when cycle turns - policy terms/conditions and active monitoring
● Diversified portfolios are less vulnerable
● Identify a potential down-turn timely and take appropriate measures both on the risk and policy side
● For 2013, measures should have been taken in 2012
● Premium rates need to be risk adjusted to be able to absorb higher loss in bad years
● Alignment of interest between policy holder and underwriter; retentions (>15%), aggregate limits and deductibles
● Make the cake bigger, through e.g. product innovation
● Transparency
● Consultancy role – “much more than insurance”
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Single Risk Cover and the crisis
• The market fared well during the 2008-2009 global slump:
passed the stress test despite higher claims severity one player withdrew
PRI market uptrend resilient showing rapid premium growth
ample capacity available two years later
• The last crisis recognized as largest loss occurrence met by the
private market since its development
• “Pure” Political Risk coverage hardly affected
• Single Risk Debtor coverage remains bulk of major claims.
• Unclear overall picture total claims during the period: • est. between 1.5 and 3 billion USD.
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Lessons learned from claims
Recovery potential is at the heart of the PRI private market
• One of the most important aspect of PRI underwriting is about
determining if there is a basis for securities and potential recovery.
• Claims related to Single Risk private Debtor raised several issues
after crisis:
conflicts of local jurisdictions, notably with the emerging
countries;
hard time for the Insurers in being entitled to exercise their
rights belonging to the Insured in foreign jurisdictions;
narrow border between Sovereign Buyer / Private Buyer;
convergence of interests between private operators and ECAs
in claim management still existing but limited common
approach.
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Bite the bullet
In the wake of the crisis, there is momentum forward-thinking on our
business practices and reviewing the concrete and legal issues that we have
to deal with:
• Refocus on definition and scope of PRI products. What about emerging
non-trade related issue?
• Pursue innovation in products to meet new clients’ expectations as banks
growing needs.
• Improve policy wordings with regard to law and jurisprudence evolution
and market practices.
• Enforce recovery process (subrogation clause).
• Principle of a separate treatment of commercial debt and financial debt
towards multilaterals?
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The ICISA initiative
To better assess the efficiency of our industry, we should improve our market standards and practices, enhance data transparency and better structure the market to address the major challenges the PRI has to deal with.
• In June 2009, ICISA sets up a new committee for “non-traditional credit insurance
business” launched under the influence of single risk insurance providers, members
of ICISA.
• The ICISA Single Risk Committee organizes an annual meeting with Lloyds’s,
ECAs and market political risk insurers that are not members of ICISA. Broadest
representation of the Single Risk Market.
• The SRC has launched a number of important initiatives such as a market survey, a
classification on product types as well as the terminology catalogue.
• Current concern: the principle of separate treatment of commercial debt vs.
financial debt with the view that UNCTAD, the UN and the ICC acknowledge this
principle in their standards in conformity with current practices.
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The Current Market
Where are we now?
Hardening market
Ample reinsurance capacity
Premium income rising
Insolvencies increasing
Claims increasing: frequency – average claims size
Current crisis political (EU/USA)
Sovereign risk – ability to support
Trade Finance: lack of trust + Basle II & III
Growth in Asia & L America
Clients’ expectations
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The Current Market
What are the consequences?
Mismatch between risk and premium
Reliability
Transparency
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The Current Market
What is the role of a private trade credit insurer?
Support the economy?
Support its clients?
Protect its shareholders?
Job security?
All of the above?
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The future of Trade Credit Insurance
● Internal:
Entry-level for new players is high
Differing risk perception: low rates vs. high risks
Shareholders changing demands
● External:
Effects of the crisis (euro? inflation? recovery?)
Solvency II favours diversified insurers
Ample reinsurance capacity
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New Products
● Do we need new products?
● Excess of loss
● Cancellable/non-cancellable limits
● Benchmark:
Risk syndication
New risks – identify market concerns:
Environment
Sovereign/Political
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New Players, New Challenges
● New underwriters – New reinsurers - Driver:
Ability
Capacity
Opportunity
● Negative economic outlook
Country risk concerns
Crunch in trade finance
Increasing claims - soft market
● New territories:
BRICs
Eastern Europe
Asia
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Current Issues and Concerns
● Advocacy
Solvency II / CAT Risk
Accounting Standards (IFRS4)
Marketable Risks in the E.U.
Shadow Banking in the E.U.
Lack of financial information - E.U. and China
India: restrictions on underwriting trade credit
● Media & Communication:
Communication Contacts Network
Crisis Team
Asia Team
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ICISA Media & Communication
Press
Press conference calls
Press releases
Press meetings/ Press tour
Publications
Newsletter
Yearbook
Catalogue of Terms
Positioning papers
Book on trade credit insurance
Social Media
Communication Contacts Network
Crisis Team
Asia Team
One Pagers
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ICISA / JAN 2012 / General
Education and Training
Training Seminars:
– Two-Day Seminars: Basic + Advanced
– Open Standard Seminars
– In-House customised Seminars
– One-Day Fly-In-Fly-Out
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ICISA / JAN 2012 / General
Training Seminars 2013
20 – 22 March 2013
• Credit Insurance – Basic
• Surety – Basic
12 – 14 June 2013:
• Credit Insurance – Advanced
• Surety - Advanced
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