European Investing Summit 2015 Euler Hermes (ENXTPA:ELE) Robert Leitz, iolite Partners

Transcription

1 European Investing Summit 2015 Euler Hermes (ENXTPA:ELE) Robert Leitz, iolite Partners

2 TRADE IDEA: LONG EQUITY EULER HERMES AT EUR 85/SHARE HQ at La Defense, Paris, France A key infrastructure provider to global trade: the world s leading provider of trade-related insurance solutions (34% market share) At a low valuation P/E: 12.8x Dividend yield: 5.1% 9.3% owner earnings (cash dividend + annual growth in book value/share) With significant upside Multiple expansion (fair value P/E: 20 to 25) Growth of global trade in real and nominal terms Higher returns on investment portfolio High cash levels and a very strong balance sheet And a low downside Strong moat Global network of customer relationships and market intelligence Diversified revenue streams in terms of countries and industries Demonstrated resilience in market downturns - remained profitable throughout period Good capital allocation: mix of growth capex and cash dividends Strategically backed by insurance giant Allianz 2

3 KEY FACTS (EURm) LTM Jun 15 Turnover 2,596 Net Income (group share) 301 Net income margin 12% Total assets 6,562 Equity (ex. NCI) 2,590 Equity ratio 39% Return on equity 12% Investments 3,805 Investment income 96 Investment return 2.5% Shares out (m) 44.2 Market cap (at EUR 85/share) 3,854 P/E 12.8x P/BV 1.5 x Dividend yield 5.1% Employees 6,411 Euler Hermes is the world s leading provider of trade-related insurance solutions with a 34% market share Provides companies of all sizes with the domestic and export market knowledge and support they need to successfully manage their trade receivables in changing economic environments Covers EUR 860 billion of business transactions annually Present in over 50 countries that account for 93% of world GDP Employs 1,500 credit analysts and risk underwriters Produces its own information on more than 40 million companies Has a history dating back over 100 years: today s group grew out of Euler SFAC in France and Hermes Kreditversicherungs-AG in Germany Euler Hermes has grown both organically and through acquisitions 3

4 CREDIT INSURANCE trade seller Sale and shipment of goods Extends a short-term loan to buyer (trade receivable) credit insurer Protects seller by covering default risk Provides risk monitoring services Provides debt collection services trade buyer Typically pays seller days after shipment date (trade payable) Credit insurance allows a creditor (the seller/provider) with a term debt held on its debtor (the buyer/client), to ask an insurer, through the payment of a premium, to cover the risk of non-payment of the trade receivable. To that end, credit insurance is one of the key hedge instruments of trade credit risk. Credit insurance relies on know-how in information acquisition and management on debtors and their economic environment, which is essential for analyzing and overseeing debtor risks for both its policyholders and its risk underwriters, who are in charge of evaluating these risks. Euler Hermes also puts its expertise in management and debt collection to the service of its policyholders, through a full range of services. In the event that a debt is not paid by the debtor, Euler Hermes generally handles the recovery of unpaid receivables, in order to limit the loss and release the policyholder from managing this dispute phase, allowing it to preserve, to the extent possible, its commercial relations with its debtor (unless the policyholder expressly wishes to maintain the power to carry out the recovery himself). In the event that these procedures fail, and once a specific period has elapsed in the insurance policy, credit insurers typically pay the policyholder a portion of the unpaid covered receivable (generally 85% to 90%), with this risk sharing contributing to a community of interests between the credit insurer and its policyholders, in order to encourage a prudent risk management. Credit insurance is typically a more cost effective and empowering option for a company than factoring. 4

5 EULER HERMES: PRODUCTS AND VALUE PROPOSITION product customer value proposition revenue share credit insurance 87% Credit monitoring: provides market intelligence / know-how to customers with unique database in in both depth and freshness Credit insurance: covers credit risk associated with business transactions Euler Hermes receives more than 20,000 credit requests per day and 85% are processed immediately or in less than 48 hours EUR 860 billion insured trade amount and EUR 2.5 billion premium income = 0.3% cost to customer Helps companies build their growth on solvent customers, improve their credit rating and free liquidity To offset an unpaid receivable of just 10,000 euros on its income statement, a supplier working on a 5% margin will have to generate 200,000 euros in extra sales collection of unpaid receivables 6% Provides own specialist teams in export markets Helps customers focus on core business activities Expertise: handles 380,000 debt collection files in more than 130 countries, annually Customers benefit from specialist network and expertise of Euler Hermes bond guarantees 7% Provides a wide variety of surety bonds and guarantees (e.g. contract performance bonds, custom bonds, infrastructure bonds, etc.) Helps improve a customer s credit rating Protects customers from large one-off losses Has granted facilities of more than EUR 28 billion 5

6 COMPETITIVE LANDSCAPE Market Share % 34.0% 19.0% 20.0% Euler Hermes Atradius Coface Cesce AIG/Chartis QBE insurance Zurich R+V Other A large share of global credit insurance is handled by government controlled institutions (a form of export subsidies) The free market is dominated by European players: Euler Hermes, Atradius, Coface, Cesce Japan Until 2005, effectively a monopoly of the state insurer NEXI NEXI still retains a 80-90% of export credit market share Top 3 Japanese insurers have formed strategic alliances in the export credit market with foreign credit specialists (namely: Coface, Atradius, Euler Hermes) China USA Mitsui Sumitomo - Coface Tokio Marine - Atradius Sompo Insurance - Euler Hermes Dominated by two players: Export-Import Bank of China (China Exim Bank) and China Export & Credit Insurance Corporation (Sinosure) Sinosure In 2009, insured $116 billion worth of exports In May 2011, the Chinese government decided to inject $3.1 billion as part of its effort to improve commercial viability of financial institutions In 2011, had to pay $1.6 billion for insurance claims related to Libya Export-Import Bank of the United States 6

7 EULER HERMES: BUSINESS MOAT Debtor's economic sector (EURbn) growth Retail % Construction % Food % Services % Metal % Chemicals % Machinery & Equipment % Commodities % Electronics % Automotive % Household equipment % Computers & Telecoms % Transport % IT Services % Textile % Paper % Other % Total % Market naturally tends to favour larger players: Significant economies of scale and scope: brand/customer relationships, customer database/risk assessment, sales network Few companies can provide in-house risk monitoring as well as debt collection services on a global basis Global corporations need strong global insurance partners Consolidation through acquisitions: it s relatively easy to grow market share and synergies through acquisitions Database/market intelligence is a highly valuable asset Euler Hermes often benefits from knowing the financial situation of trade parties (buyers and sellers) Co-underwriting substantially reduces principle-agent problem Enormous portfolio diversification: Euler Hermes covers millions of cross-country, cross-industry, short-term loans Mission statement of competitor Coface: The mission is to provide companies with a capital base at the lowest price, together with global proprietary financial information that is produced in-house and not available on the market, as well as collection capacity, so that its customers can securely expand in their markets. 7

8 EULER HERMS: GLOBAL FOOTPRINT AND GROWTH Debtor's country of location (EURm) Europe 585, , , ,779 Americas 70,874 86,622 96, ,065 Asia-Pacific 32,659 42,431 50,842 67,632 Middle East 8,036 12,094 14,925 21,311 Africa 5,294 6,618 7,130 9,095 Total 702, , , ,882 Sales margin (sales / volume) 0.32% 0.31% 0.31% 0.29% Turnover by region (EURm) Germany, Austria, Switzerland France Northern Europe Mediterranean, Middle East, Africa Americas Asia-Pacific Other Total 2,275 2,398 2,486 2,527 Turnover by region (%) Germany, Austria, Switzerland France Northern Europe Mediterranean, Middle East, Africa Americas Asia-Pacific Other Total A solid performance in 2014 was driven by higher volumes at lower margins Volume rose by 8.9% Turnover rose by 1.6% to reach EUR 2.5 billion. At constant rates, the turnover increased by 1.7%. 90% customer retention rate The Middle-East, Africa and Asia are becoming more important on an absolute and on a relative basis Management s assessment Prices were in average negative due to the low level of frequency claims and the competitive market environment We again delivered good overall results in The growth rate was, however, below our expectations due to the challenging market environment described above. While commercial teams performed well, results were hampered by the slowdown in economic growth plus geopolitical events disturbing business confidence. However, profitability was solid. 8

9 EULER HERMES BALANCE SHEET Balance Sheet (EUR million) Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Jun-14 Jun-15 Intangible assets Investments 2,900 2,973 3,049 2,666 2,870 3,453 3,568 3,831 3,750 3,989 3,816 3,805 Investments accounted for at the equity method Share of assignees and reinsurers in the technical reserves and financial liabilities Operating property and other property, plant and euipment Acquisition costs capitalised Deferred tax assets Inwards insurance and reinsurance receivables Outwards reinsurance receivables Corporation tax receivables Other receivables Assets held for sale Other assets ,080 1,037 1,128 1,073 1,130 1,098 1,053 1,170 1,231 Cash Total assets 4,698 4,774 4,888 5,057 5,150 5,659 5,818 6,064 6,063 6,360 6,287 6,562 Equity, group share 1,737 1,892 2,059 1,835 1,796 2,130 2,278 2,467 2,462 2,581 2,426 2,590 NCI Provisions for risks and charges Borrowings Liabilities related to contracts 1,497 1,413 1,426 1,854 1,837 1,781 1,899 1,931 2,029 2,177 2,139 2,312 Other liabilities 1,021 1, , Total liabilities and shareholder equity 4,698 4,774 4,888 5,057 5,150 5,659 5,818 6,064 6,063 6,360 6,287 6,562 9

10 EULER HERMES BALANCE SHEET Balance Sheet (EUR million) Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Jun-14 Jun-15 float is 1.5x annual turnover Intangible assets Investments 2,900 2,973 3,049 2,666 2,870 3,453 3,568 3,831 3,750 3,989 3,816 3,805 Investments accounted for at the equity method Share of assignees and reinsurers in the technical reserves and financial liabilities Operating property and other property, plant and euipment % over 49 9 years Acquisition costs capitalised Deferred tax assets Inwards insurance and reinsurance receivables Outwards reinsurance receivables Corporation tax receivables pending property 20 sales Other receivables growing cash levels Assets held for sale Other assets ,080 1,037 1,128 1,073 1,130 1,098 1,053 1,170 1,231 Cash 39% equity ratio Total assets 4,698 4,774 4,888 5,057 5,150 5,659 5,818 6,064 6,063 6,360 6,287 6,562 Equity, group share 1,737 1,892 2,059 1,835 1,796 2,130 2,278 2,467 2,462 2,581 2,426 2,590 NCI Provisions for risks and charges Borrowings strong growth in provisions Liabilities related to contracts (EUR 230m for retirement commitments) 1,497 1,413 1,426 1,854 1,837 1,781 1,899 1,931 2,029 2,177 2,139 2,312 Other liabilities 1,021 1, , Total liabilities and shareholder equity 4,698 4,774 4,888 5,057 5,150 5,659 5,818 6,064 6,063 6,360 6,287 6, % over 9 years Strong balance sheet and very consistent growth of key metrics 39% equity ratio is among the highest in the industry Given short duration of policies (receivable days are typically days) large portion of float should be recoverable cash in liquidation scenario (total amount driven by retained profits rather than aggressive underwriting) Pending property sales and higher cash levels might trigger special cash dividend or acquisition The market value of the real estate property was EUR 234 million (Dec 14) low NCI 10

11 EULER HERMES INCOME STATEMENT Income Statement (EUR million) FY FY FY FY FY FY FY FY FY FY FY FY LTM Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Jun-14 Jun-15 Jun-15 Turnover 1,927 2,012 2,099 2,166 2,086 2,148 2,275 2,398 2,486 2,527 1,269 1,338 2,596 Insurance services expense (609) (693) (754) (1,307) (1,276) (705) (786) (1,050) (1,047) (999) (494) (491) (997) Net outwards reinsurance income or expense (250) (188) (131) (11) (25) (216) (202) (43) (102) (145) (67) (103) (182) Contract acquisition expense (284) (284) (303) (312) (332) (349) (380) (391) (427) (453) (229) (239) (463) Administration expense (189) (194) (214) (221) (176) (194) (208) (241) (206) (208) (99) (106) (215) Other ordinary operating income and expense (277) (313) (305) (280) (341) (335) (339) (348) (360) (371) (185) (205) (392) Underwriting income (65) Investment income Investment management charges (25) (17) (12) (20) (10) (8) (11) (12) (8) (9) (4) (5) (10) Net gain (loss) on sales of investments less impairment and depreciation writebacks Change in fair value of investments recognised at fair value through profit or loss 0 2 (2) (1) (2) (5) 0 0 (4) (4) Change in investment impairment provisions (2) (4) (4) (23) (1) (4) (6) (2) (1) (3) (2) (0) (1) Net change in foreign currency (10) 13 2 (1) (1) (5) (1) 7 2 Investment income Ordinary operating income Other operating income and expense (9) (83) (8) (9) 27 (23) (2) (1) (22) Operating income Financing expense (10) (11) (13) (16) (10) (14) (17) (14) (11) (8) (4) (5) (9) Income from companies accounted for by the equity method Corporation tax (158) (157) (162) (72) (48) (93) (130) (121) (137) (116) (72) (78) (122) Consolidated net income Minority interests (0) (4) (4) (4) (4) (3) (3) (4) (3) (2) (2) (0) (1) Net income, group share

12 EULER HERMES INCOME STATEMENT +31% over 9 years weaker than growth of float Income Statement (EUR million) FY FY FY FY FY FY FY FY FY FY FY FY LTM Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Jun-14 Jun-15 Jun-15 from 14.7% of sales to 17.9% Turnover 1,927 2,012 2,099 2,166 2,086 2,148 2,275 2,398 2,486 2,527 1,269 1,338 2,596 Insurance services expense (609) (693) (754) (1,307) (1,276) (705) (786) (1,050) (1,047) (999) (494) (491) (997) Net outwards reinsurance income or expense (250) (188) (131) (11) (25) (216) (202) (43) (102) (145) (67) (103) (182) Contract acquisition expense (284) (284) (303) (312) (332) (349) (380) (391) (427) (453) (229) (239) (463) Administration expense (189) (194) (214) (221) (176) (194) (208) (241) (206) (208) (99) (106) (215) Other ordinary operating income and expense (277) (313) (305) (280) (341) (335) (339) (348) (360) (371) (185) (205) (392) Underwriting income (65) Investment income Investment management charges (25) (17) (12) (20) (10) (8) (11) (12) (8) (9) (4) (5) (10) Net gain (loss) on sales of investments less impairment and depreciation writebacks only 1 year with (marginal) underwriting losses Change in fair value of investments recognised at fair value through profit or loss 0 2 (2) (1) (2) (5) 0 0 (4) (4) Change in investment impairment provisions (2) (4) (4) (23) (1) (4) (6) (2) (1) (3) (2) (0) (1) Net change in foreign currency (10) 13 2 (1) (1) (5) (1) 7 2 Investment income declining investment income despite larger portfolio no increase in absolute underwriting income despite growth in turnover and balance sheet size Ordinary operating income Other operating income and expense (9) (83) (8) (9) 27 (23) (2) (1) (22) Operating income Financing expense (10) (11) (13) (16) (10) (14) (17) (14) (11) (8) (4) (5) (9) Income from companies accounted for by the equity method Corporation tax (158) (157) (162) (72) (48) (93) (130) (121) (137) (116) (72) (78) (122) Consolidated net income Minority interests (0) (4) (4) (4) (4) (3) (3) (4) (3) (2) (2) (0) (1) Net income, group share Strong track record of producing stable earnings and moderately paced business growth Strong earnings performance through crisis Declining underwriting income could reflect higher transfer pricing with Allianz, weaker underwriting standards, higher competitive pressures, or ongoing sluggishness of the global economy Declining investment returns mainly reflect lower market yields (government bonds) 12

13 EULER HERMES - KEY RATIOS Key Ratios (EUR million) FY FY FY FY FY FY FY FY FY FY FY FY LTM Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Jun-14 Jun-15 Jun-15 Share count (000s) 43,389 43,540 43,683 43,542 43,515 43,835 43,678 43,951 44,181 43,982 44,000 44,204 44,204 Treasury shares (000s) 1,442 1,411 1,370 1,541 1,568 1,267 1,482 1,262 1,161 1,360 1,343 1,138 1,138 Total shares (000s) 44,830 44,951 45,053 45,082 45,083 45,103 45,159 45,213 45,342 45,342 45,342 45,342 45,342 Cash dividend Cash dividend / share Book value / share Owner earnings (cash dividend + growth in book value / share) Equity ratio 37% 40% 42% 36% 35% 38% 39% 41% 41% 41% 39% 39% 39% Cash / total assets 5% 7% 8% 12% 9% 5% 6% 5% 5% 5% 5% 8% 8% Underwriting income / equity 18% 18% 19% 2% (4%) 16% 16% 13% 14% 14% 8% 7% 13% Underwriting income / total assets 7% 7% 8% 1% (1%) 6% 6% 5% 6% 6% 3% 3% 5% Underwriting margin 17% 17% 19% 2% (3%) 16% 16% 14% 14% 14% 15% 14% 13% Return on equity 16% 17% 20% 5% 1% 14% 14% 12% 13% 12% 7% 7% 12% Return on investments 4% 5% 6% 5% 5% 4% 3% 3% 2% 2% 1% 2% 3% Share price Market cap 3,854 P/E 12.8 x P/BV 1.5 x Return on equity 11.6% P/owner earnings 9.3% Dividend yield 5.1% 13

14 EULER HERMES - KEY RATIOS Key Ratios (EUR million) FY FY FY FY FY FY FY FY FY FY FY FY LTM Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Jun-14 Jun-15 Jun-15 minimal dilution Share count (000s) 43,389 43,540 43,683 43,542 43,515 43,835 43,678 43,951 44,181 43,982 44,000 44,204 44,204 Treasury shares (000s) 1,442 1,411 1,370 1,541 1,568 1,267 1,482 1,262 1,161 1,360 1,343 1,138 1,138 Total shares (000s) 44,830 44,951 45,053 45,082 45,083 45,103 LTM owner 45,159 earnings 45,213 45,342 of EUR 45, /share 45,342 45,342 45,342 high payout ratio Cash dividend Cash dividend / share Book value / share Owner earnings (cash dividend + growth in book value / share) growth in book value / share (despite cash payouts) Equity ratio 37% 40% 42% 36% 35% 38% 39% 41% 41% 41% 39% 39% 39% Cash / total assets 5% 7% 8% 12% 9% 5% 6% 5% 5% 5% 5% 8% 8% Underwriting income / equity 18% 18% 19% 2% (4%) 16% 16% 13% 14% 14% 8% 7% 13% Underwriting income / total assets 7% 7% 8% 1% (1%) 6% 6% 5% 6% 6% 3% 3% 5% Underwriting margin 17% 17% 19% 2% (3%) 16% 16% 14% 14% 14% 15% 14% 13% Return on equity 16% 17% 20% 5% 1% 14% 14% 12% 13% 12% 7% 7% 12% Return on investments 4% 5% 6% 5% 5% 4% 3% 3% 2% 2% 1% 2% 3% declining underwriting margins Share price Market cap 3,854 declining investment returns P/E 12.8 x P/BV 1.5 x Return on equity 11.6% P/owner earnings 9.3% Dividend yield 5.1% At EUR 85/share, I expect the company to generate 9% returns excluding multiple expansion: 5% dividends and 4% growth Over the last 9 years, the company has paid out EUR 31.60/share in cash dividends Declining underwriting and investing returns have led the return on equity to come down from 16% in 2005 to 12% LTM 14

15 EULER HERMES: FLOAT Investment Portfolio (net book value, EUR million) Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Shares Bonds 2,215 1,882 2,183 2,465 2,684 2,877 2,657 2,816 Loans and other investments Investments 2,957 2,598 2,841 3,439 3,558 3,768 3,676 3,989 Net investment income Net investment return 6.3% 5.1% 5.2% 3.6% 3.2% 2.9% 2.3% 2.1% jumps: reclassification of demand deposits Bond portfolio at market value by maturity to 1 year to 3 years to 5 years to 7 years to 10 years Beyond 10 years Total 2,657 2,816 Portfolio equity risk on December 31, 2014 pro-cyclical allocation to equities decline in investment returns (EURm) Bonds Equity Total Market value on Dec 31, , ,062 Impact of a 100bp increase in interest rates (85) (85) Impact of 10% fall in equity markets (24) (24) EUR 3.9 billion float = 1.5x annual turnover The majority of investments are in short-term government bonds. Therefore, rising interest rates are an opportunity Euler Hermes could quickly shift into higher yielding bonds. A sudden rise in interest rates would cause short-term mark-to-market losses with little impact on cash returns if held to maturity Considering the size and nature of Euler Hermes float, it is assumed that a large portion of it is retained earnings = recoverable cash in a liquidation scenario Credit insurance policies have a short life (receivable days typically days) Bond guarantees have a longer life (e.g. pension guarantees) Historically, the allocation to equities was pro-cyclical Arguably, a part of the float (the portion consistent of retained earnings) could be invested into higher yielding asset classes such as equities The loans and other investments are mainly composed of cash at hand waiting for investments. (Euler Hermes) if true, this means the total cash balance is closer to EUR 1 billion 15

16 EULER HERMES: SHAREHOLDER STRUCTURE Top 10 shareholders share cum 1 Allianz 69.6% 70% 2 Silchester International Investors 5.1% 75% 3 Franklin Resources 5.1% 80% 4 Massachusetts Financial Services 2.2% 82% 5 Bank of America 1.3% 83% 6 Norges Bank 1.1% 84% 7 Kiltearn Partners 1.0% 85% 8 Columbia Management 1.0% 86% 9 Parvus Asset Management 1.0% 87% 10Oppenheimer Funds 0.8% 88% As at June 30, 2015, the Allianz group owned 30,744,048 shares out of a total of 45,342,177 shares, corresponding to 67.8% of the share capital of Euler Hermes Group. Consequently, Euler Hermes Group is integrated into the Allianz consolidation scope. As at June 30, 2015, Euler Hermes Group s share capital was composed of 45,342,177 shares, including 1,137,836 shares held in treasury stock. Free float is about EUR 1.2 billion. However, a material part of the float is owned by large pension funds. The actual float is therefore probably smaller (EUR million). Shareholder structure supports cash dividends (cash upstream to Allianz) 16

17 EULER HERMES: VALUE DRIVERS cash generation multiple expansion At EUR 85/share, I expect the company to generate 9% annual returns to shareholders: I would consider a P/E ratio of 20x justified for a business like Euler Hermes (vs current 13x) 5% cash dividends 4% growth/reinvestment A great investment candidate for pension funds defensive characteristics A good company with a strong moat solid growth prospects Attractive nominal and real growth potential high cash dividends Would be a beneficiary of higher interest rates One of the strongest balance sheets in the industry Growing cash levels could trigger a special dividend or larger acquisition Significant part of investment portfolio assumed to be unrestricted cash in liquidation scenario Could increase volumes materially if underwriting margins improve Leveraged dividend trade: large hedge funds could use the company s small public float to stabilize the market price and prevent margin calls Catalysts Current low market valuation could trigger an acquisition by Allianz A new large institutional buyer would likely lift the price substantially Market value of real estate portfolio is EUR 234m 17

18 EULER HERMES: INVESTMENT RISKS risks mitigants / opportunities Macro risks Economic collapse of global trade (e.g. Financial Crisis 2008) Geopolitical events (e.g. Russia/Ukraine conflict) Natural disasters Trade restrictions and economic sanctions Partly unfair competition through governmentcontrolled institutions Investment portfolio: mark-to-market losses and/or permanent loss of capital Possible conflicts of interest between Allianz and minority shareholders (e.g. transfer pricing) Accounting quality of long-term insurance liabilities Diversification / portfolio effect - in the past, the occurrence of natural or economic disasters had little sustained impact on total Group profitability Reported underwriting performance of credit insurance (millions of short-term loans) is naturally of higher quality than those of long-life insurance policies (e.g. reinsurance, life-insurance) Euler Hermes reinsures certain risks Trade claims are senior secured in most jurisdictions (retention of title) Higher lending standards due to risk-sharing with policyholders Short duration of investment portfolio (mostly 2-3 year government bonds and cash) Insurance companies can raise capital by increasing underwriting volumes in times of need One of the highest equity ratios in the industry 18

19 CONTACT INFORMATION Robert Leitz graduated from the University of St. Gallen (HSG), Switzerland, with a Master of Science in Business Administration and Economics. He wrote his master s thesis at Columbia University, New York, under the guidance of Prof. Eli Noam. Robert has previously worked as a management consultant at KPMG Corporate Restructuring and as an investment analyst at Goldman Sachs European Special Situations Group, a proprietary trading desk with extensive experience in new issue senior bank debt, mezzanine loans and high-yield bonds as well as secondary investing in turnarounds, restructurings, distressed debt, disfavored equities and capital structure arbitrage. He later joined TPG Credit (now: Castlelake), a multi-billion credit opportunities hedge fund launched in partnership with private equity firm TPG (Texas Pacific Group), as a founding member. In 2008, Robert founded iolite with the aim to generate sustainable, market-beating absolute returns. iolite Partners Zurich, Switzerland robert.leitz (at) iolitepartners.com 19

20 DISCLAIMER This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Past results are no guarantee of future results and no representation is made that an investor will or is likely to achieve results similar to those shown. All investments involve risk, including the loss of principal. The author does not have a position in Euler Hermes (as of September 2015). 20