Credit Insurance - Global companies Presentation by: Philip Prunty – Executive Director Trade Credit & Surety V1.0 11th October 2016

Credit Insurance Global organisations / Trade Finance How Global Organisations use Credit Insurance How Credit Insurance works with Trade Finance providers How companies manage bad debt risk How the market has evolved in the past 5 years  Thoughts on future evolutions

4 approaches to risk Ignore Avoid - eliminate the risk Transfer - shift impact to 3rd party Mitigate - decrease probability of impact.

Why companies use credit insurance Compete for business Respond swiftly to opportunity Analyse financial and market stability On going monitoring Domino effect (customers customer, supply chain impact etc.) Focus internal resources while out-sourcing Competitive advantage on size Through higher credit limit and / or longer terms of payment

Access to offering and service Underwriters and brokers structuring Central decision -making v local Policy underwriting – central or local Local service ( underwriter and broker) Efficiencies and control v company politics

How companies manage credit risk Global / regional programmes Assist in change management Standardisation / control Out-sourcing – order to cash functions Align organisations functions – sales, finance, account receivables Limitations ( skills, people, resources ) Basle III Capital Allocation requirements ( operational and market) Trade Finance - access

How the company should use credit insurance Discussion around risk tolerance levels Risk mitigation techniques Banks are using credit insurance for: Capacity Transfer risk Transfer receivables off balance sheet into cash Basle III credit mitigation

How companies manage credit risk CRD IV – Capital Requirements Directive IV EU legislation package for banks Amount of capital that a bank is required to hold compared to assets Main requirement is that under Basle III bank must hold a proportion of its capital to reflect its business risks Capital is calculated as the value of the firms capital as a percentage of it’s risk weighted assets Mitigating risk on loans / financial exposures is main area of focus for the banks Under Basle II insurance could be used a qualifying mitigant if it meets criteria applicable to guarantees Insurance has inherently conditional features

Capital Requirements Some mechanisms are recognised by regulatory capital rules therefore have the effect of reducing capital requirements Legislation is broad and not exactly prescriptive – left to each bank to decide / get own advise that protection arrangements are legally effective Hence focus upon legal opinion Careful drafting essential

Why banks use credit insurance Requirement for due diligence on counter parties ( know your customer / know your customers customer) Banks use investment grade insurers to minimise their regulatory capital Increasing trend of credit insurance backed trade finance Companies can use their credit insurance policy to obtain funding facilities from their financing banks

Developments in past 5 years More insurers enter market More capacity Increasing trend of credit insurance backed trade finance Non cancellable buyer credit limits / delayed effect Syndication more common Layering / more imaginative structuring Underwriter information – country/ sector / economic analysis Modelling / scoring portfolios

Regulatory environment Regular remarketing / tendering Prices driven downwards Cost ratios pressure Exposure accumulation (capacity at pre crisis levels …and yet prices ..) Conditionality removal IT / ledger integration

Where to from here… Passporting issues IT / ledger / finance developments Integration of credit insurance and bank offerings / white labelling European banking industry – non performing loans , structural reform requirement and no softening of prescription of capital requirements.

Thank you Presentation by: Philip Prunty Contact details Tel: 07900 738 653 Email: philip_prunty@ajg.com