Trade Credit Insurance Products Robert Nijhout

Transcription

1 Trade Credit Insurance Products Robert Nijhout 1

2 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) 2

3 ICISA Members 48 Members Afianzadora Latinoamericana Allianz SE Askrindo Aspen Re Atradius AXA Assurcredit AXA Winterthur AXIS Re Catlin Re CESCE China National Investment & Guaranty CLAL Credit Insurance Coface COSEC Credit Guarantee Ducroire Delcredere ECICS Euler Hermes Fianzas Atlas Fianzas Monterrey Garant The Guarantee Company of North America Groupama Assurance-Crédit Hannover Re HCC International ICIC Lombard Insurance Company Mapfre Caución y Crédito Mitsui Sumitomo Munich Re Nationale Borg Novae PartnerRe PICC Property and Casualty Company PRISMA R+V QBE SACE BT SCOR Global P&C SE Seoul Guarantee Insurance Company SID-First Credit Sompo Japan Swiss Re Tokio Marine & Nichido Fire Insurance Tryg Garanti Zurich 3

4 Organisation Accounting & Regulatory Committee Committee of Underwriters Committee on Management Issues Credit Insurance Committee President Vice-President Executive Director Management Committee Secretariat Asia Sub-Committee Single Risk Committee Communications Contact Network Solvency II Expert Group Surety Committee Crisis Team 4

5 Meetings Annual General Meeting (AGM) (June) Spring Meetings (March) Autumn Meetings (September) (technical committee meetings) Project Meetings Ad Hoc Meetings 5

6 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. 6

7 ICISA Members Geographical Spread 7

8 Association Networking AMAN UNION 2 shared members ALASECE 4 shared members BERNE UNION 7 shared members PASA 22 shared members SFAA 6 shared members 8

9 Advocacy Partners European Union: European Commission EIOPA ECB Insurers of Europe IASB ICC OECD World Bank UNCITRAL Media 9

10 Types of Cover 10

11 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 11

12 Whole Turnover vs. Selected Cover vs. XoL 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 12

13 Additional Services Prospecting Negotiation about payment condition Risk assessment of buyer Monitoring of buyer Debt collection on buyer Loss minimising 13

14 Trade Credit Insurance vs. Financial Guarantee 14

15 Official ICISA Definition - Financial Guarantee 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. 15

16 Trade Credit Insurance vs. Financial Guarantee (I) Nature of the customer Trade Credit insurance Protects the seller of goods against the default of his client Holder = beneficiary debtor Financial guarantee Arranged at the request of the party whose obligation is being guaranteed Holder = debtor beneficiary Covered Asset 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 Coverage of a specified Client (debtor) for a specified amount and a specified lengh of time Pricing at inception 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 Credit risk analysis of the specified client (same as a loan) 16

17 Trade Credit Insurance vs. Financial Guarantee (II) Subsequent measurement Credit event Trade Credit insurance Estimate of future cash flows of the portfolio Outside the control of the insured Financial guarantee Line by line solvency assessment 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) Settlement Indemnity settled to the insured with subrogation on the receivable. No additional revenue Loan to the holder with additional interest revenue 17

18 ICISA Trade Credit Insurance Members Results 2011 Premium: million Claims: million Claims Ratio: 43.9% Insured Exposure: billion 18

19 Millions Trade credit insurance premium, claims & claims ratio ICISA Members* (excl reinsurance members) Amount in EURO 7,000 6,000 5,000 Claims Ratio in % 100% 90% 80% 70% 4,000 3,000 2,000 1,000 60% 50% 40% 30% 20% 10% Premiums Claims Claims Ratio in % % 19

20 Billions Trade credit insurance Insured Exposure ICISA Members* (excl reinsurance members) 2,000 1,800 1,600 1,400 1,200 1, Insured Exposure Trade Credit Insurance

21 Premium Volume in % of GDP Market Penetration development Source: Swiss Re 0.07% 0.06% 0.05% 0.04% 0.03% 0.02% 0.01% 0.00% USA Canada United Kingdom Germany France Italy Switzerland Spain Austria 21

22 Development of average premium rates Index 100 = 2003 Source: Swiss Re 22

23 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 23

24 Single Risk Cover and the crisis The market fared well during the 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. 24

25 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. 25

26 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? 26

27 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. 27

28 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 28

29 The Current Market What are the consequences? Mismatch between risk and premium Reliability Transparency 29

30 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? 30

31 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 31

32 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 32

33 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 33

34 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 34

35 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 LinkedIn Communication Contacts Network Crisis Team Asia Team One Pagers 35

36 Education and Training Training Seminars: Two-Day Seminars: Basic + Advanced Open Standard Seminars In-House customised Seminars One-Day Fly-In-Fly-Out info@stecis.org ICISA / JAN 2012 / General 36

37 Training Seminars March 2013 Credit Insurance Basic Surety Basic June 2013: Credit Insurance Advanced Surety - Advanced info@stecis.org ICISA / JAN 2012 / General 37

38 MERCI THANK YOU جزيال شكرا Terima Kasih teşekkür ederim 38