coface country risk conference 2007 the changing shape of political risks insurance charles berry...

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