euler hermes presentation

Fraser Valley Chartered Accountants Association

Credit Insurance Overview

February 7, 2013David Newstead

Assistant RVP,Canada

2Date | © Copyright Euler Hermes Presentation title

Euler Hermes at a glance

119 years of experience AA- S&P Rating and an A+ rating from AM Best Headquartered in Baltimore, MD. Canadian HQ- Toronto, ON 50 local offices nationwide and in 52 countries Staff of 6,000 associates worldwide provides localized sales and

servicing Backed by blue-chip ownership through the Allianz Group Guarantee over $120 Billion in sales annually. Over $1 Trillion

globally. Provide coverage in over 200 foreign markets Industry based experts in risk underwriting Customized analysis and support to our clients International Risk Database monitors & grades over 45 million

companies worldwide


What is Credit Insurance?


Loss Protection and Prevention

Protection against unexpected bad debt losses due to insolvency, slow pay or political risk.

Insolvency can be a CCAA, Ch. 7, 11, 13, bulk sale, receivership, general meeting of creditors, etc.

Everything else falls into the slow pay “bucket”. Slow pay claims must be filed within 90 days from due date or 180

days from ship date, whichever is longer.

We act as collection company with the guarantee…if we don’t collect we pay.

If we collect debt then the business is assessed a collection fee however, deductible or coinsurance do not apply.


Export Coverage

Provides an organization with increased sales, cost savings and protection from unexpected losses

- Eliminates… Need for Letters of Credit− Covers shipments for the year − Open terms allows the buyer to keep their working capital line of

credit available for other uses

- Competitive Edge … Offering open terms − The difference in winning business or retaining from competition?

- Borrow… Export Receivables are no longer non-performing assets

− Recognized collateral that can open up opportunities for better financing

- Political Risk… Export protection− Inability to obtain hard currency− Changes in Import/Export regulations− Foreign government non-payment


Bad Debt Management/Catastrophic Loss

Protection


Accounts Receivable: The Only Major Asset Left Uninsured

What assets are insurable? What assets are insured?

There is a greater chance that a business will experience a loss within their accounts receivable than any other asset.

Where does the A/R fall on a client’s Balance Sheet? Typically represents 40% of a company’s assets Most vulnerable to unexpected losses Highly likely to be affected by business cycles Provides cash flow for the business Only under-leveraged assetFew companies can effectively compete without extending credit to their buyersWhat amount of loss would seriously

impact a company’s financial stability or annual profit? How many accounts have credit extended over that limit?


“My Accounts Are As Good as Gold.” Really?

Bankruptcies are inevitableHave happened to big named companies

Failures come from increasingly unpredictable sources

Management Deficiencies Complex Financial Restructuring

Legal Maneuvering (Ch. 11) Product Liability

Regulatory Changes Political & Global Economic Change

Will your business be part of the Cash Flow Domino? Euler Hermes monitors beyond the primary debtor

??????


Effects Of A Bad Debt Loss

The table shows the amount of sales required to recover from a bad debt loss.

A $250,000 debt @ 6% profit margin requires you to generate an additional $4,166,667 to just to BREAK EVEN.

Profit Margin $25,000 $50,000 $100,000 $250,000 $500,000 $1,000,000

2% $1,250,000 $2,500,000 $5,000,000 $12,500,000 $25,000,000 $50,000,000

4% $625,000 $1,250,000 $2,500,000 $6,250,000 $12,500,000 $25,000,000

6% $416,667 $833,333 $1,666,667 $4,166,667 $8,333,333 $16,666,667

8% $312,500 $625,000 $1,250,000 $3,125,000 $6,250,000 $12,500,000

10% $250,000 $500,000 $1,000,000 $2,500,000 $5,000,000 $10,000,000

15% $166,667 $333,333 $666,667 $1,666,667 $3,333,333 $6,666,667


Loss Avoidance/ Credit Enhancement


Risk Underwriting Approach

A combination of…- Financial statement analysis- Political/Country risk- Macroeconomic trends- World Class Economists on staff- Industry information- Reporting of past dues from our policy holders

Better Information= Better Decisions!


Buyer Coverage Types

Named Buyer Discretionary Buyer

>$100k Credit Limit

Regularly monitored by: -Financial Statement analysis-Policy Holder Past due reporting-Alerts from monitoring agencies

>$100k Credit Limit

Request and limits reviewed by Euler Risk Underwritersin local jurisdiction

Qualified by credit management

using 1 criterion.Either:

2 trades and 1 bank ref.

Industry report (ie D&B)

Financial Statements

Internal trade experience


Named Buyer Grading, Monitoring and Credit Request Criteria

Euler Hermes Risk Rating GenericDescription

MonitoringFrequency

1 Exceptional

2 Excellent Annually

3 Strong

4 Good

5 Average Annually and by alert

6 Watch Bi- Annually

7 Substandard Quarterly

8 High Risk Monthly

9 Uninsurable

10 Failed As needed


EOLIS Online Database

45 Million Companies Monitored and graded in our worldwide risk database

2,000 debtors Processed on-line each day

17,000 Credit Limit RequestsReceived each day

81% of Credit Limit Requests Processed in less than 48 hours

Credit Limit Request Turnaround TimeDomestic: 1 day (95%)

Exports: 4-7 days (95%)


Sales Growth/Expansion


Sales Expansion

Operating FactsCompany: $40 Million in Sales Average A/R: $6 Million Gross Margin: 10% Account Turns Per Year: 8

ObjectiveCompany has a few large/new accounts that offer additional selling opportunities but reached their “comfort” exposure level. Interested in a credit risk protection program that would allow to safely increase sales.

Profit/Payout (on just ONE approved account)

"Comfort" Exposure $750,000

Approved Coverage $1,000,000

Sales Opportunity $250,000

By Account Turns 8

Incremental Annual Revenue $2,000,000

By Gross margin percent 10%

Increased Gross Profit $200,000


Access to Capital


Bank Financing- Access to Untapped Capital

$65,250,000 in Additional Working Capital using underutilized assets.

* 30 day DSO


Thank you for your attention

euler hermes presentation

Documents

euler hermes monitors

credit limit

loss protection

risk underwriterseither

ship date

unexpected bad debt

risk underwriting approach

unexpected losses