lloyd’s lass of usiness event political risks 18th april...
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Lloyd’s Class of Business Event Political Risks 18th April 2013, Vienna, Austria
BPL Global | 18 April, 2013
PRI Market – An Overview
2
BPL Global
• Political Risk Insurance (PRI) broker
• Founded 1983
• Located in London, Paris, Hong Kong, Singapore
• Independent, employee owned
• International client base:
– major corporations and financial institutions
• Global Partners: USA, Italy, Brazil, Chile
3
BPL Global’s Focus
ECAs - Hermes, EKN, Exim,etc
- Some short term (ST)
- Mainly MLT* business
Monoline Credit
Insurers - Euler Hermes, Atradius, etc
- Short term, multi-buyer business
- About USD 6 – 7 billion premium
PRI Market
- Special & single risks
- Emerging markets focus
- About USD 1.5 billion premium
* MLT = medium and long term
4
PRI Market: Overview
Political
Risks
Non-Payment
Risks
Investment
insurance
• Equity form
• Lenders form
• Property damage
• Business interruption
• War Risks:
• Long, large,
and/or complex
risks for
exporters and
traders
• Trade finance
• Commodity finance
• Export finance
• Project finance
• Sovereign lending
• Corporate lending
Property based
political risk
insurance
Speciality trade
credit
Insurance
Credit
insurance
for banks
Emerging Market Risks
Risks related to political and
economic conditions in a
foreign country
• Civil unrest
• Terrorism
• Rebellion
• War/Civil War
• Confiscation
5
PRI Market: Insurers by rating
Companies:
AA Ducroire/ONDD
HCC
AA- ACE
Euler Hermes
Inter Hannover
Sovereign Risk
Zurich
A+ FCIA
QBE
A Aspen
Atradius (A.M. Best)
AXIS
AIG
Lancashire
Markel
A- Catlin Bermuda
Ironshore
Liberty International
Coface (Unistrat)
XL
Lloyd’s:
A+ Amlin
Ark
Ascot
Beazley
Catlin
Chaucer
Hardy
Hiscox
Kiln
Liberty LSM
Limit/QBE
MAP
Marketform
Novae
Pembroke
Starr
Talbot
6
Sovereign (ECA) ratings
AAA Germany
Netherlands
United Kingdom
Canada
AA+ USA
France
Austria
AA/AA- Belgium
China
Saudi Arabia
A/A- Brazil
South Africa
BBB+ Italy
Russia
BBB- India
Spain
7
Catlin
AIG
ONDD
Sovereign
Zurich
ACE
ATI
Dhaman
Lancashire
Starr
XL
Ark
Ascot
Canopius
Chaucer
HCC
Hiscox
Ironshore
Kiln
LAU
LIU
LSM
Marketform
Novae
Pembroke
Talbot
Atradius Amlin
Hardy
QBE/COF
ONDD ATI
Dhaman
LSM
Aspen
Axis
Beazley
Catlin
Coface
Euler
ICIEC
Jubilee
XL
Zurich
ACE
FCIA
HCC
Hiscox
Ironshore
Kiln
LAU
LIU
Marketform
Novae
Starr
Talbot
Atradius
Chaucer
Pembroke
QBE
Canopius
Hardy
Markel
AIG
PRI Market: Insurers by tenor
Maximum credit period (years)
Aspen
Axis
Beazley
Coface
Euler
FCIA
ICIEC
Jubilee
Comprehensive
Political only
1.5 2 3 5 4 7 10 15
8
PRI Market: Theoretical capacity per risk
(USDm)
Source: BPL surveys
0
200
400
600
800
1000
1200
1400
1600
1800
CF CR
2008
2009
2010
2011
2012
9
PRI Market: General characteristics
• Specialist
• Diverse
• Capacity driven:
– Country aggregates
– Buyer aggregates
• Subscription market
10
BPL Global – Broker acts for the
policyholder
• Capital providers:
– Specialist insurers and
reinsurers
– Underwriting agents act for
capital providers
– Role of Insurers: to make
sure PRI market works for
the capital providers
• Clients:
– Policyholders, being
exporters, investors and
financial institutions
– Brokers act as agent of
policyholders
– Role of Brokers: to make
sure the PRI market works
for clients
– Client/policyholder service,
not “distribution”
11
BPL Global: headline numbers
• Premium flow - 2012 : USD 250 million
• Claims collected - 1983 to 2012 USD 1.36 billion +
12
BPL Global – Bank Policies
• Bank Loan Comprehensive Non-Payment Policy
• Bank Loan Guarantor Non-Honouring Policy
• Trade Debt Comprehensive Non-Payment Policy
• Non-Honouring of Letter of Credit
• PRI “Lenders” Policies
13
BPL Global: recent export finance
transactions
• Angola Electrical Equipment 5 years
• Angola Airport upgrade 5 years
• Angola Transport infrastructure 5 years
• Azerbaijan Energy equipment 10 years
• Azerbaijan Energy equipment 6 years
• Ethiopia Wind energy 5 years
• Gabon Sports infrastructure 7 years
• Gabon Prison upgrade 5 years
• Ghana Telecoms 10 years
• Ghana Corp. jet 5 years
• Indonesia Military equipment 5 years
• Laos Telecoms 5 years
• Togo Military equipment 5 years
• Turkey Transport infrastructure 6 years
• Turkey Transport infrastructure 8 years
• Turkey Transport infrastructure 10 years
• Vietnam Industrial equipment 12 years
• Vietnam Industrial equipment 7 years
• Vietnam Power equipment 10 years
• Vietnam Water infrastructure 12 years
14
US$ m years
Ark
Amlin
Ascot
Beazley
Canopius
Catlin
Chaucer
Hardy
Hiscox
Jubilee
Kiln/IBS
Liberty
Market Form
Novae
Pembroke
Starr
Talbot
20
10
5
30
25
75
20
15
25
15
40
35
20
25
15
50
30
455
5
3
5
7
5
10
5
3
5
7
5
5
5
5
5
7
5
LLOYD’S : PUBLIC OBLIGORS Syndicates S&P Rating Max Limit Period
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
15
US$ m years
Ark
Amlin
Ascot
Beazley
Canopius
Catlin
Chaucer
Hardy
Hiscox
Jubilee
Kiln/IBS
Liberty
Market Form
Novae
Pembroke
Starr
Talbot
-
10
5
20
12
65
7.5
15
25
10
40
3
20
10
2.5
25
10
270
-
3
5
7
5
7
5
2
5
5
5
2
5
5
3
5
5
LLOYD’S : PRIVATE OBLIGORS
Syndicates S&P Rating Max Risk Period
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
A+
16
COMPANIES : PUBLIC OBLIGORS
Companies S&P Rating Max Limit Period
US$ m years
ACE
Atradius
Aspen
Axis
AIG
Coface Unistrat
HCC
ICIEC
Ironsure
LAU/AWAC
Liberty Int’l
Lancashire
ONDD
Sovereign
XL
Zurich
Euler
AA-
A (AM Best)
A
A
A
A-
AA
Aa3 Moody’s
A-
A
A-
A
AA
AA-
A-
AA-
AA-
60
70
70
50
120
70
30
75
20
20
30
75
25
80
75
150
100
1120
10
5
7
7
15
6
5
20
5
7
5
5
15
15
10
15
7
17
COMPANIES : PRIVATE OBLIGORS
Companies S&P Rating Max Limit Period
US$ m years
ACE
Atradius
Aspen
Axis
AIG
Coface Unistrat
HCC
ICIEC
Ironsure
LAU/AWAC
Liberty Int’l
Lancashire
ONDD
Sovereign
Zurich
Euler
AA-
A (AM Best)
A
A
A
A-
AA
Aa3 Moody’s
A-
A
A-
A
AA
AA-
AA-
AA-
30
70
70
35
75
70
30
75
20
12.5
30
75
7
-
50
100
749
10
5
7
7
15
6
5
20
5
7
5
5
5
-
7
7
18
Single Risk Process
1. Analyse the risk
2. Format the term sheet
3. Collate market responses (non-binding indications)
4. Devise the placement strategy
5. Prepare the information pack
6. Negotiate the wording
7. Bind cover
8. Provide post placement services
19
Providing post placement services
• Documentation
• Premium payment
• Reporting
– quarterly or 6 monthly review of policies
– regular reviews in event of potential loss: involve insurers
• Amendments to insured contract
– essential to inform insurers prior to making material
amendments
– endorse policy to add any additional works / values
• Extensions
• Notice of loss
• Claims
20
The Claims Process
• Broker claims team:
– works in conjunction with the placing team
• Aim:
– to settle claims in full at the end of the waiting period
• Claims timetable:
– set out in the policy wording
• Proof of Loss:
– format specified in the policy wording
• Loss adjustors:
– part of the process. Broker attends meetings
• Minimising loss:
– close liaison between the policyholder, broker and insurers throughout the process
• Recoveries:
– liaison continues after claim payment and during the recovery phase
21
BPL Global: PRI Claims
“Failure to pay”
policies
PRI only / misc
policies Total
Notifications
Full Settlement
Compromised
Denied
of which
- paid after
arbitration
- arbitration lost
- denial accepted
Pending
Totals
290
257
11
3
0
2
17
290
40
27
8
1
1
1
2
40
330
284
19
4
1
3
19
330
Source: BPL Global Claims Dept.
Claims from 1983
To 31 May 2012
22
-50
0
50
100
150
200
250
300
350
400
Percentage
loss ratio
19 8 3 19 8 4 19 8 5 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0 19 9 1 19 9 2 19 9 3 19 9 4 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 10
Year
BPL Global Portfolio : Historical Loss Ratios
Gross
Net
23
Financial Crisis: PRI Market Claims:
BPL’s November 2009 Estimate
• Estimated market aggregate figures: – Problem cases +/- USD 4 billion
– Likely paid claims: +/- USD 2.5 billion
– Paid, net of recoveries: USD 1 to 1.5 billion?
• Mainly private sector default
• Validating product
– Exporters and traders
– Banks and regulators
• PRI Market: Robust
24
BPL Global
Claims – 2007 & 2008 Years of Account
Full Settlement
Compromised
Total Settled
Denied/Disputed
Pending
Totals
Recoveries
621.6 67
8.4 3
630.0 70
9.0 1
60.0 8
699.0 79
160.0
USDm No. of cases
Choice in medium and long term (MLT) export credit insurance
BPL Global | 18 April, 2013
Change is coming
Change is coming
• De facto ECA monopoly
18 April 2013 Change is coming 26
• “Mixed market” ‒ ECAs and private insurers
competing
CHOICE
Two private markets
18 April 2013 Change is coming 27
Short term credit
insurance market
PRI Market ECAs
18 April 2013 Change is coming 28
• Short-term risk (mainly in EU and OECD)
• Short-term risk in emerging markets • MLT credit risk
Short term credit
insurance market
ECAs PRI Market
“Marketable” risk “Non-marketable” risk
PRI Market: growing appetite for MLT business
18 April 2013 Change is coming 29
Public buyers / borrowers (USD 1.75 billion)
Private buyers / borrowers (USD 1.2 billion)
100% 99% 81%
46% 26%
100% 90% 67% 10%
33%
3 years 5 years 7 years 10 years 15 years
MLT private market placement - Latin American borrower, USD 200 million+
18 April 2013 Change is coming 30
Higher rate
Lower rate
Placement rate
= Participant insurers indicated rate and line size
18 April 2013 Change is coming 31
“Market gap”
Short term credit
insurance market
ECAs PRI Market
“Marketable” risk “Non-marketable” risk
18 April 2013 Change is coming 32
“Market gap” “Market window”
ECAs and PRI market overlap
Short term credit
insurance market
ECAs PRI Market
“Marketable” risk “Non-marketable” risk
Net loss ratios*
18 April 2013 Change is coming 34
* Claims, net of recoveries, as a percentage of premium
9.4%
55.2% 55.3%
45.2%
Atradius 10 year average
2002 - 2011
Euler Hermes 8 year average
2005 - 2012 BPL Global 30 year private
market portfolio 1983 -
2012
Berne Union 30 years
1982 - 2011
Basel 3 : Levels playing field
18 April 2013 Change is coming 36
BB AA A AA AAA 0 BBB 0 AAA A BBB BB
SACE
CESCE Coface Hermes
ECAs Private market
Aspen
Lloyd’s
ACE
Zurich
OeKB
Basel 2 :EU ECA level playing field
18 April 2013 Change is coming 37
BB AA A AA AAA 0 BBB 0 AAA A BBB BB
SACE
CESCE Coface
Hermes
OeKB
“… trade distortions…”
18 April 2013 Change is coming 39
The change “…will create new ground for trade distortions, as the countries with better ratings will be able to offer a
competitive advantage to their exporters.” Raoul Ascari, COO, SACE
“The fact that Spanish exporters may not be able to complement their technical offers to their clients with
competitive financial packages puts them at a disadvantage in the face of their counterparts from
countries that are better rated…” Beatriz Reguero, COO, CESCE
18 April 2013 Change is coming 40
“Market gap” “Market window”
ECAs and PRI market overlap
Short term credit
insurance market
ECAs PRI Market
“Marketable” risk “Non-marketable” risk
EC definition of “marketable risk”
18 April 2013 Change is coming 41
Risk is considered “marketable” only if the capacity of the
private insurance market is “…sufficient to cover all
economically justifiable risks in the country or countries
concerned.”
27 February, 2013 Change is coming 42
“Market gap” “Market window”
ECAs and PRI market overlap
Short term credit
insurance market
ECAs PRI Market
“Marketable” risk “Non-marketable” risk
“Fully marketable” risk Risks that are “not fully marketable”/“capacity constrained”
Issues in “market window” / “market gap”
• ECAs should compete across “market window” / “market gap”
- Subject to observance of OECD Consensus
• Level playing field between ECAs/private insurers
- Premium taxes
• ECAs should observe subscription market best practice
- Revisit “co-operation”
18 April 2013 Change is coming 43
MLT private market placement - Latin American borrower, USD 200 million+
18 April 2013 Change is coming 44
Higher rate
Lower rate
Placement rate
= Participant insurers indicated rate and line size