and Risk Assessment G. CHRISSANTAKIS Madrid – March 10th 2016 Credit Insurance and Risk Assessment G. CHRISSANTAKIS Madrid – March 10th 2016

Content of the presentation Insurance is part of a global Risk Strategy Credit Insurance Environment and Market Players Credit Insurances as Business Enablers Coverage Macro-economic factors Exposure Monitoring Claims & Recoveries Source of information Open discussion

Counterparty Risk Strategy Know Your Customers (KYC) Know Your Exposure (KYE) Assess your Corporate Collection competence Balance between Costs of Risk (Bad debt provisions, write-offs, etc…) Missed Business Opportunity % Revenue dedicated to risk coverage KYC involves or a direct contact with the operators or a close collaboration with the Sales organization to get the needed info KYE involves a close monitoring of the exposure with an efficient alarm management and forecasts Credit is one of the orientation indicator for the Collection activity Always in mind “The right Counterparty Risk strategy maintains a right balance between business opportunities and cost of risks”, including insurance premiums

A Sample of methodology Fictive example of methodology and data mining Per Country ? Per Group ? Per Product ? Etc… Sample of Ageing Overdue (Self ?) Curative % Bad Debts Write Offs 0 to 5K€ 5% 75% 20% 15% 5K€ to 20K€ 10% 85% 8% 20K€ to 100K€ 100K€ to 500K€ 35% 90% 2% 500K€ to 1M€ 95% 0% Over 1 M€ Total 100% Per Country ? Per Zone/Continent ? Per Group ? Per Product ? Etc… Any strategy definition needs a beforehand analysis of past Credit & Collection experiences. The Data Collection and Data Mining is crucial to allow a valid identification of (no-)risks areas. The result will orient the negotiation with insurances to both cover correctly the high risks and mitigate the costs on no-risk areas. The deepest goes the data mining, the more dynamic will be the negotiation. To note that insurances take the analysis of their customers to produce their quote. Identify the areas of RISKS and NO-RISKS  Define a Credit and Bad Debt Policy

Market Players (Worldwide 2014 figures – Total premiums perceived) This chart refers to the market of the Trade & Export Credit Insurances Key market players provide theoretically a WW coverage However, some prefer the so-called Zone 1 (old economies like Euler) or Zone 2 (emergent economies like CrediMundi) Source: Experts in Credit Management Specialized in Credit Management

Which coverage ? Economical risks (TB Negotiated) Political Risks (FX freeze, Nationalization, etc…) Stop Loss, Mezzanine, special BUs, Total Revenue Type of thresholds (if any – TB Negotiated) Unnamed risks Unsecured risks (no deposit, no guarantees, no LOI) Single coverages accepted or not Group coverages Syndicated coverage Prior notice change/cancellation of coverage

Macro-Economic Factors Countries partially covered Countries excluded Countries conditionally covered Some examples Embargo’s (Civil) War Area Currency usage Prior notice to change coverage MEF to take into account varies from insurance to insurance but generally all insurances do share the same opinion on a particular country risk Examples and comments about country coverage with CrediMundi: Partially covered : Russia, Egypt, Angola, Ecuador Not covered: Afghanistan, Sudan, South Sudan, Syria, Iran Conditionally: Iran, Libya, Cuba

Monitoring. A question of organization Periodic Portfolio Reviews (TB Negotiated) Disclose regular ageing balances Credit Ratings (each one his own rating) Global view of insurer Claims history Global view of coverages & overdue (see above reviews) Ratings & Credit Limits Financials & non-financials elements Some examples Prior notice to reduce/remove a coverage Good to arrange regular portfolio reviews with insurer Insurer select the case they want to review based on the ageing balances disclosed regularly (monthly, quarterly, etc…) Explanations on the added value of a credit insurance

Claims & Recoveries Standard: claim = end of commercial relation Recovery actions for any claims (insured or not) Fronting by insured or insurer (TB Negotiated) Can happen during/after a portfolio review Time frame between claim and indemnity (TB Negotiated) Insured can decide to temporary suspend or to stop the recovery process (TB Negotiated) Recovery actions in parallel An example Normally, the introduction of a claim means the end of the commercial relation (no more billing) The insurer can take care of recovery actions on your behalf even if the debt was not insured; in case of a claim higher than the coverage, recoveries are shared Insured decides if he keep the lead of the process to recover the debt At the occasion of portfolio review, the insurance can consider that the payment retention is no more acceptable and ask to introduce a claim (or to cancel the coverage) Recovery strategy defined with the insurance (who’s doing what when and how…); playing in the movie “The Good, the Bad and the Ugly”

Insurances as sources of information Credit Underwriting Open discussion with the Credit Analyst of the insurance All decisions can (must ?) be challenged Group Monitoring Example Country Monitoring Change of Credit Ratings Example for Credit Underwriting: request FS or explanations on trends/events directly to the customer; challenge the decision based i.e. on own payment experience, etc…; (cases disclosed verbally only) Example of Group Monitoring: interaction with insurer about 2 case study (group names disclosed verbally only) Example of Country Monitoring: explain the Venezuela case + Cuba or Iran Example of Change of Credit Ratings: (specific cases whose name will be disclosed verbally only)

This is it. Thanks for your attention This is it ! Thanks for your attention ! Let’s start the open discussion with a short introduction on costs and premiums…

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