coface country risk conference 2007 the changing shape of political risks insurance charles berry...
TRANSCRIPT
Coface Country Risk Conference 2007
The changing shape of political risks insurance
Charles Berry
Chairman, BPL Global
Coface Country Risk Conference 2007
BPL Global – Emerging Market Risk
Insurance broker specialising in Emerging Market Risk
• Political Risk Insurance (PRI)
• Trade Credit Insurance
• Terrorism and Political Violence Insurance
Founded 1983
Based in London and Paris
Independent, employee owned
International client base:
– major corporations and financial institutions
Global Partners:
– USA Italy
– Austria Brazil Chile
Coface Country Risk Conference 2007
PRI Market – Product Overview
Non-Payment Insurance: Special Risks
• Sovereign / Government Buyers / Obligors
• Single Risk / Medium Term Emerging Market Private Buyers
Equity Form PRI: Investment Insurance
Lenders PRI
Property Based PRI: Terrorism, Political Violence etc covers
Coface Country Risk Conference 2007
Overview
Period
ECAs and the Private Market
Basel II & product innovation
Pricing
Coface Country Risk Conference 2007
Political & Commercial
Political only
1 1.5 2 3 4 5 7 10 15
CSLLIBLIMITPWHTAL
Ark5
AtriumEIC1
FCIAHCCHISKLNLIUNVARTHUnistrat
AFBSJC4
ACEChubbSovereign
AIGONDD2
Zurich
CofaceEulerH
AIGQBE
DucroireSJC4
CSLKLNLIBPWH
ACE3
AFBArk5
AtriumChubbEIC1
FCIAHCCLIUNVAUnistrat
Trade related single obligor risks
Zurich ONDD2
Maximum Credit Period (years)1. $5m net line has no limitation on credit period 4. No formal maximum but non-structured credit usually max. two years
2. No maximum - depends on goods/project/country 5. Normal maximum five years but exceptionally seven or even ten
3. Structured credits - otherwise three years
Atradius
Atradius
Coface Country Risk Conference 2007
ECAs and the Private Market
The “market gap”
ECAs as facilitators, packagers and syndicators
Co-operation and competition
Coface Country Risk Conference 2007
Basel II - Overview
Basel II will impact trade and commodity finance in emerging markets adversely
Comprehensive non-payment insurance policies can qualify as Credit Risk Mitigation (CRM) under Basel II
Coface Country Risk Conference 2007
Background to Basel II
Regulators catching up with industry practice
• New forms of “guarantees”
» Unfunded Risk Participations
» Credit Default Swaps
“….a wider range of credit risk mitigants (CRM)….”» June 2004 Framework: para. 110
Non-payment insurance policies are an acceptable “guarantee” under Basel II, subject to them meeting the operational requirements
• FAQ #6, BIS website, Oct.2002
Coface Country Risk Conference 2007
Basel II CRM – 2 key points
All conditions within direct control of the Bank
• an “unconditional guarantee” can have conditions
The bank must control “residual risks”
• “…it is imperative that banks employ robust procedures and processes to control [residual] risks”
» June 2004 Framework, Para. 115 re “Overarching issues of CRM”
Coface Country Risk Conference 2007
BPL Global & Basel II
Product
• Non-payment insurance policies can meet the criteria for Basel II compliant CRM
Process
• BPL Global helps Bank clients control the “residual risk”
Proof
• BPL Global’s claims statistics show that our non-payment insurance works
Coface Country Risk Conference 2007
BPL Global Claims Experience -Non-Payment Insurance works!
“Failure to pay”policies
PRI only / miscpolicies
Total
Problem resolved
Full Settlement
Compromised
Deniedof which - paid after arbitration - arbitration lost - denial accepted
Pending
Totals
55
159
6
3
02
15
240
10
24
8
1
01
4
48
65
183
14
4
03
19
288
Source: BPL Global Claims Dept.
Claims from 1983to May 2007
E. & O.E.
Coface Country Risk Conference 2007
Non-Payment Insurance - Improvements
Conditions
• Within direct control of Policyholder
Removal of traditional exclusions
• E.g 5 Great Powers War Exclusion
• Lloyd’s March 2007 new regulations
Shorter Waiting Periods
Clear claims procedures and timetables
Coface Country Risk Conference 2007
…but it's still insurance
Principle of Indemnity
Utmost Good Faith
Proving a Loss
• vs. Pay first argue later
Coface Country Risk Conference 2007
PRI Market – Final Thoughts
Non-Payment Insurance: Special Risks
• Sovereign / Government Buyers / Obligors
• Single Risk / Medium Term Emerging Market Private Buyers
Equity Form PRI: Investment Insurance
Lenders PRI
Property Based PRI: Terrorism, Political Violence etc covers