uk government trade credit scheme ... - marsh commercial
TRANSCRIPT
MARSH 2
Matthew Strong
CEO, Credit Specialties,
UK & Ireland
Ian Watts
Practice Leader, Trade Credit,
UK & Ireland
Steve Howells
Head of Major Accounts, Trade Credit, UK & Ireland
Speakers
MARSH 3
• The impact of COVID-19 and UK Government response.
• Importance of credit sales to the UK economy.
• How does credit insurance support the UK economy?
• Details of the UK Government scheme.
• What can your business do to prepare?
• Our commitment to you.
Agenda
To submit a question, click the Q&A icon on your screen. Type your question in the open area and click “SUBMIT.”
If a question is not answered during today's webcast, a specialist from Marsh JLT Specialty will respond as soon as possible.
MARSH
COVID-19 ImpactA Rapidly Evolving Global Emergency
Source: John Hopkins University
• First reported on 31 December 2019.
• Declared a public health emergency of international concern by the World
Heath Organisation on 30 January 2020.
• As of 24 June 2020:
• 9.2 million global cases reported.
• 477,800 reported deaths.
Travel restrictions and lockdown affecting over half the world.
Flight, conference, and event cancellations.
Supply chains fracturing.
Market volatility and global recession.
Employee infection risk, workforce downsizing, working from home, productivity losses.
MARSH
UK Economic Response
• £490 billion package.
• £330 billion in state loans and guarantees to UK businesses (COVID-19 Corporate
Financing Facility, Coronavirus Business Interruption Loan Scheme).
• £30 billion deferral of VAT.
• £130 billion discretionary spending (NHS, business support, welfare, job retention
scheme).
• Suspension of business rates.
• Public sector loans to support private investment – £250 billion.
• Interest rate reductions.
• Bank of England relaxation of the countercyclical capital buffer to 0%.
7Source: Organisation for Economic Co-operation and Development
MARSH
The Importance of Open Credit to the UK Economy
• UK GDP (2019) is £2.21 trillion – total of all production in the UK. (HM Treasury)
• Insurers cover circa £350 billion of credit sales (domestic and export) at any one time. (HM Treasury)
• Of all UK company assets, just under 40% are held in trade receivables.1
• Estimates that unsecured trade credit delivers a 1.5 multiple to overall money supply.2
• Research in the 1990s concluded trade credit has exceeded the entirety of bank lending.3
• 90% of UK firms sell 80-100% of goods on credit terms. Over 30% of UK business only sell on
credit terms.4
8
1 ,4 Paul, S., Wilson, N., 2006. Trade credit supply: an empirical investigation of companies level data. Journal of Accounting-Business and Management. Quoted here:
https://pearl.plymouth.ac.uk/bitstream/handle/10026.1/11332/secret%20life%20of%20trade%20credit.pdf?sequence=1&isAllowed2 Wilson, N., Summers, B., 2002. Trade credit terms offered by small firms: survey evidence and empirical analysis. Journal of Business Finance and Accounting. Quoted here:
https://pearl.plymouth.ac.uk/bitstream/handle/10026.1/11332/secret%20life%20of%20trade%20credit.pdf?sequence=1&isAllowed=y3 Lee, Y.W., Stowe, J.D., 1993. Product risk, asymmetric information and trade credit. Journal of Finance and Qualitative Analysis 28 (2). Quoted here:
https://pearl.plymouth.ac.uk/bitstream/handle/10026.1/11332/secret%20life%20of%20trade%20credit.pdf?sequence=1&isAllowed=y
MARSH
OVERALL GROWTH IN HOSPITALITY & GAMING SECTOR IS INFLUENCED BY AFFORDABLE TOURISM, INCREASING INVESTMENT AND TECHNOLOGICAL
ADVANCEMENTCOVID-19Financial Impact
Financial Impact
• Global supply chain disruption.
• Increase in corporate defaults.
• Some industries more affected: travel and hospitality, aviation, logistics, retail, commodity traders.
• U-shaped recovery predicted, more protracted if further severe outbreaks occur.
• Severe economic downturn predicted.
• Economies in various stages of shutdown.
• Impact on corporate sales.
• Significant surge in trade credit past dues.
Source: Marsh JLT Specialty Observations
Policy Impact
• Underwriters taking a more conservative risk approach.
• Impact on reduced/cancelled limits.
• Increased claims.
• Potential increase in premium rates.
Credit Risk
MARSH
Countries With State Support for Credit Insurance As at 5 June 2020
NORTH AMERICA EUROPEASIA PACIFIC/
MiIDDLE EAST
• Canada
• USA
• Belgium
• Denmark
• France
• Germany
• Netherlands
• Poland
• Russia
• Slovenia
• Spain
• Turkey
• UK
• China
• Hong Kong
• India
• South Korea
• Thailand
• UAE
MARSH
Trade Credit Insurance UK Government Support Scheme
11
All insurers eligible to join voluntarily.
Coface, Euler Hermes, and Atradius will join.
More likely to follow.
Covers clients domiciled in UK where UK insurance premium tax is paid (or where export from UK).
Insurers measured on reinstatement and
expected to reinstate cover. Will still be expected
to maintain prudent risk underwriting.
Likely insureds will have to substantiate level of need
when seeking reinstatement.
Government insures 90% of losses.
Insurers cede 90% of premium.
Effective from the 1 April 2020,
losses attached to the prior period are not covered.
Participating insurers signed up to broad terms of reference.
Further information to follow.
£10 billion, expected losses for UK insurers are
between £1-2 billion. Relates to claims paid, not
cover written. Total UK cover approx. £350 billion.
No specific rules on what’s included -driven by market
forces and insurer appetite.
MARSH
What Do You Need to Do?
12
Review bad debt provision.
Assess the vulnerability of
your supply chain.
Assess your exposures.
Credit control and review payment terms.
Access to finance.
Credit management.
MARSH
Case Studies
• Risk Transfer: The Impact of Bad Debt
SME with £1.5 million loss on British Steel.
13
Finance
Growth
Credit Management
Risk Transfer Supply
Chain
• Credit Management/Corporate GovernanceGlobal office supply company with multiple offices across Europe.
• FinanceUK-based services company experienced difficulty obtaining required credit limit on key buyer, leading to lower levels of financing.
MARSH
Case Studies
• Growth
Fast-growing UK SME selling construction
materials experienced restrictions with their
specific export customers.
14
Finance
Growth
Credit Management
Risk Transfer Supply
Chain
• Lubricating the supply chainNational tool hire group having to pay a major manufacturer on pro-forma terms due to mistaken cover withdrawal by major insurer.
MARSH
What Next?
15
Option for Marsh JLT
Specialty to investigate
creditworthiness of your top
few customers.
Service to liaise with credit
insurance market to ensure
your key suppliers have the
insured credit limits they
need.
MARSH
Q&ATo submit a question, click on the Q&A icon on your screen. Type your question in the open area and click “SUBMIT.”
If a question is not answered during today's webcast, someone from Marsh JLT Specialty will respond as soon as possible.
MARSH
Managing COVID-19 Risks
For the latest information visit
Marsh’s Pandemic Risk Hub at
www.marsh.com
Marsh JLT Specialty is a trading name of Marsh Limited and JLT Specialty Limited. The content of this document reflects the combined capabilities of Marsh Limited and JLT Specialty Limited. Services provided in the United Kingdom by either Marsh Limited or JLT Specialty Limited; your Client Executive will make it clear at the beginning of the relationship which entity is providing services to you. Marsh Ltd and JLT Specialty Ltd are authorised and regulated by the Financial Conduct Authority for General Insurance Distribution and Credit Broking. If you are interested in utilising our services you may be required by/under your local regulatory regime to utilise the services of a local insurance intermediary in your territory to export (re)insurance to us unless you have an exemption and should take advice in this regard.
This is a marketing communication. The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.
This PowerPoint™ presentation is based on sources we believe reliable and should be understood to be general risk management and insurance information only.
Copyright © 2020 Marsh Ltd. All rights reserved.