1. Distribution and Risk Mitigation Silja Calac, ITFA Board Member and Senior Underwriter, Swiss Re Corporate Solutions Paolo Carrozza, Chief Commercial Officer Middle East, Euler Hermes GCC Dubai, 13 February 2017

2. Agenda
Brief summary of the Regulatory Environment : Capital Requirements / Basel III
Risk Mitigation and Distribution of Trade Assets: Different forms of risk mitigation
Insurance: Various risk cover available for transaction banking / trade finance

3. Capital requirements under Standard Approach
AAA
AAA-
AA+AA AA
AA- A+ A-
BBB+
BBB
BBB-
BB+ BB
BB- B+ B B-
lower rating
no rating
in default
Corporate Customers
20%
50%
100%
150%
Sovereigns 0%
Bank's residence country
Banks / Insurance
Retail
75%
Commercial property
50 to 100%, to the discretion of local monetary authority
Private property
35%

4. Effect of CRI on RWA $10M $50M $100M $100M $100M $60M
$50M INSURANCE FROM ‘AA’ RATED ENTITY
LOAN TO ‘BB’ RATED CORPORATE OBLIGOR
RISK WEIGHTED ASSET VALUE OF ‘BB’ LOAN
$10M
NET COMBINED RISK WEIGHTED ASSETS
$50M LOAN NET AFTER INSURANCE
$50M
$100M
$100M
$100M
$60M

5. RWA and Regulatory Capital comparison table
SHOWING LIKE-FOR-LIKE BENEFIT (BASE = 100)

6. Distribution Channels overview
Risk Participations
Relative simplicity and possibility of being undisclosed to original parties
Relies on a “fronting” bank administering the transaction until maturity
Insurance
Also undisclosed and a complementary source of risk capacity
Unfunded only, and minimum hold requirements
Forfaiting Agreements
Ongoing framework for individual transactions sold on a forfaiting basis
Typically requires recognition of assignment/endorsement/transfer
Assignment Frameworks
Equitable Assignment
Care around perfection of assignment
Synthetic Securitisations
Possible capital relief from selling first loss on a portfolio
Difficult to achieve “risk mitigation”
Collateralised Loan Obligations
Comprehensive benefits from selling a “vertical slice” of portfolio
Expensive to set up, diversity requirements preclude large single tickets
Special Purpose Vehicles
Repackaging transactions for institutional/alternative investors
Single transactions may not be profitable enough to cover cost
ECAs / Multilaterals
Sovereign / multilateral risk support for transactions
Typically in the form of a guarantee only, and specific criteria have to be met

7. Risk Mitigation Techniques
The new industry focus on risk mitigation => development of a new investor base for trade finance :
Risk Participation Structures
Source: SIBOS 2011 – Citi presentation

8. risk participation
A way of transferring economic risk & rewards without transferring legal title
Two types: unfunded (risk) and funded
Unfunded (risk) participation (essentially a guarantee)
Underlying obligor
Grantor
Participant
1. $100m loan
2. Sells 50% risk participation
3. Defaults on $10m repayment instalment
4. Pays share of defaulted amount - $5m
Funded participation (essentially a back-to-back limited recourse loan)
Underlying obligor
Grantor
Participant
1. Utilisation of $100m loan
2. Participant with 50% participation pays share of utilised amount - $50m
3. Repays $10m instalment
4. Pays share of repaid amount - $5m

9. http://www.baft.org/policy/document-library BAFT MRPA
Freitag, 12. Januar 2018
BAFT MRPA
Präsentationstitel/Autor/Instradierung/Klassifikation

10. INTRODUCTION: Why Insurance?
The insurance market grew materially over the last 20 years as a consequence of growth in Emerging Market investments as well as political risk events (Argentina, Asian Debt crises, ..) and an increase in banks’ acceptance of the benefits of using insurance.
Overall market size is estimated at over $ bn annual premium and growing. Main placement hubs are London, Zurich, New York, Singapore.
Whereas the cover is unfunded the key value proposition of the insurance market is that it typically does not compete directly with the banks and is confidential. Key benefits of using insurance are:
Alternative distribution channel
Opportunity to sell down on a private/confidential basis, complementary with or as an alternative to traditional loan syndication.
Provides a straight forward mechanism for sell down of club or bi-lateral transactions.
Additional capacity
On risks where you have reached internal credit limits (counterparty/country).
To write a larger share of transactions (obtaining better pricing or league table status) in the knowledge that you can sell down to insurer.
Capital management
If cover is “unconditional” typically capital relief under Basel II/III on transactions, potentially enhancing return on capital committed to a transaction (specifically if “advanced” approach is used).
Manage concentrations against counterparties, sub-sectors, geographies etc.

11. RISK COVER FOR Transaction banking
Typical
Products
Providers
Clients
Insurance Market Solutions
Domestic Credit
Insurance
Export Credit
Credit
Companies (Mono- and Multiliners)
Surety
Financial
Guaranty
Trade Credit
Political Risk Insurance
Confiscation,
Currency Inconvertibility,
Contract Frustration, Political Violence
Multiline insurers, Export Credit Agencies,
Lloyd’s Syndicates
Banks, larger Corporates
Risk Participation
Construction, Supply, Customs Performance, Bonds
Specialized Surety Companies and Multiline Insurers
Large Construction
Companies
Small / medium sized
Corporates
Documentary Trade Finance
Commodity Trade Finance
Banks,
Insurers
Banks
Commodity Traders
Consumer Loan Insurance,
Mortgage
Indemnity, "Credit Enhancement"
Specialized Insurers, Export Credit Agencies
Page 11
Lenders,
Investors

12. CREDIT RISK INSURANCE covering accounts receivable
Cover: Non-payment of a debt or a financial obligation
Credit Risk Insurance “CRI”
covering a wide range of financial obligations
loans, guarantees, documentary credits
Short Term Trade Credit Insurance “TCI”
covering accounts receivable
Non-payment caused by “3 Perils” : Confiscation/Expropriation, War/Political Violence and Inconvertibility
Political Risk Insurance “PRI”
covering loans, guarantees, projects
parent company lending

13. Insuring clause - SAMPLES
Typical insurance policy language for a bank CRI policy:
The Insurer shall pay Compensation on the Claim Settlement Date to the Insured for the Insured Loss caused by the failure or refusal of the Borrower, for any reason, to pay Insured Principal due under the Insured Loan Agreement, provided that the Date of Loss occurs during the Policy Period.
Typical insurance policy language for a corporate TCI policy:
In consideration of the payment of the Premium, subject to and in reliance upon the statements made to the Insurers by the Insured and in strict accordance with the Policy Schedule and endorsements made as part of the Policy and its terms and conditions, the Insurer agrees to indemnify the Insured for the Insured Percentage of Loss in excess of the Deductible, provided that the Date of Loss occurs during the Policy Period, incurred in connection with Eligible Shipments and caused directly by Insolvency or Default, up to the applicable Limits of Liability.
Typical insurance policy language for a Lenders Form policy:
The Insurer shall be liable and shall pay Compensation to the Insured, subject to the terms and conditions set forth in this Insurance Policy, for the Insured Percentage of the Insured’s Loss caused by the following Political Risk Events:
Expropriation and/or
War on Land, Terrorism, Political Violence and/or
Currency Inconvertibility
and for which the Date of Loss occurs during the Policy Period.

14. Our Website: www.itfa.org