BANKING & FI USE CREDIT & PRI (RE)INSURANCE. Harry Doyne-Ditmas MEA REGIONAL MANAGER: CREDIT, POLITICAL & SECURITIES RISK

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1 BANKING & FI USE CREDIT & PRI (RE)INSURANCE Harry Doyne-Ditmas MEA REGIONAL MANAGER: CREDIT, POLITICAL & SECURITIES RISK

2 HOW BANKS & FI S USE CREDIT & PRI (RE)INSURANCE 1

3 STRUCTURED CREDIT & PRI (RE)INSURANCE DRIVERS Reduce Risk Weighted Assets. Deliver regulatory capital relief through risk substitution, reduce banks cost of capital whilst maintaining compliance with Basle II and III (if applicable). Manage aggregates across specific countries, sectors, transactions and obligors/guarantors. Support the banks business model whether it is originate to hold or originate to syndicate. Leverage relationships with clients for growth by allowing them to take larger gross hold positions versus competitors. Avoid the sharing of sensitive/legal structuring information with competitors when using risk syndication. Provide cost efficiencies versus alternative risk syndication methods. Portfolio Management 2

4 WHAT IS CREDIT INSURANCE? Cover Comprehensive Non Payment protection Transaction specific, but can be arranged as a master agreement for regular business or a facility for flow business Reduced exclusions and conditions Wording designed to address bank capital requirements and typically tailored for each institution. Note: It is still an indemnity product not fungible or therefore tradable, this is unlikely to change in near term. Parameters Tenor can be from 6 months to 15 or more years Normally the underlying transaction needs to be trade related or asset secured Cover can be for Non Payment, Non Delivery or Non Honouring (of a Guarantee) Emerging and Developed Market risk can be insured. Risk Sharing is important 90% is normal max, lower indemnities are preferred 3

5 WHAT IS CREDIT INSURANCE? Typical Applications Trade Finance Structured Trade and Commodity Finance Project Finance Increasing application to non trade exposures and portfolio management solutions Other Buyers Trading Companies Non banking FI s Industrial & Engineering Groups 4

6 THE STRUCTURED CREDIT INSURANCE MARKET There are approximately 50 private insurers in the International marketplace for Structured Credit Risk, who accept risk on a subscription / syndicated basis. Insurers include, but are not limited to: Syndicates at Lloyd s of London (Aspen, Beazley, Hiscox, LSM, Novae, Talbot etc) Company underwriters (Ace, AIG, FCIA, Sovereign (Ace), Zurich etc) Reinsurers for Portfolio and/or Single Situation (Hannover Re, Munich Re, Swiss Re etc) Multilaterals (ATI, ICIEC, DHAMAN) ECA s who accept commercial (re)insurance (ONDD, Atradius etc) Part of a broader Credit, Political & Security ( CPS ) market. 5

7 THE BROADER CPS MARKET The insurance market can help investors, traders and financiers with insurance solutions which support international trade and investment. Credit Risk Short term Trade Credit Insurance Structured Credit Insurance Political Risk [may include: Expropriation Political Violence Currency Inconvertibility Sovereign Default & other specific perils] Security Risks Contract Frustration (for trade transactions) Confiscation Insurance (mobile assets) Investment Risk Insurance (fixed assets/ equity interest & Lenders Form) Political Violence (inc. Terrorism, War/Civil War, Riots, Property Damage and Business Interruption) Kidnap & Ransom 6

8 CREDIT & POLITICAL RISK MARKET EVOLUTION 2014 Lloyds issues new guidance permitting non-trade business Basel II regulations Announced Basel III regulations Announced 7

9 CPS MARKET CAPACITY Approximately 50 private insurers in the market, largely London based, write Political and Structured Credit Risk, and accept risk on a stand alone or subscription / syndicated basis. CPS market is now bigger than at any time before - theoretical capacity has reached nearly USD 2bn for some risks. Tenor Contract Frustration (USDm) Potential Private Market Capacity Comprehensive Credit (USDm) Investment Risks (USDm) Up to 1 year approx. 2,239 approx. 1,877 approx. 2,370 1 to 3 years approx. 2,289 approx. 1,824 approx. 2,370 3 to 5 years approx. 2,263 approx. 1,470 approx. 2,350 5 to 7 years approx. 1,948 approx. 1,163 approx. 2,040 7 to 10 years approx. 1,462 approx. 502 approx. 1, to 15 years approx. 750 approx. 50 approx. 800 *excludes public sector capacity 8

10 JLT CPS CLAIMS C&P Claims Data is not available in a consistent form - market statistics are unreliable. JLT has a diversified client base by sector and geography approx 15% aggregate market share. JLT s claims experience should be reasonable proxy for the market. Lead underwriters play a critical role in successful claims. The private market willingness to pay is proven, BUT lead Underwriter selection is important ( and for Underwriters selecting the right Insured is also important). 9

11 ROLE OF THE BROKER We believe that the role of the broker is not to sell insurance, but to add value to our clients operations through maximising efficiency and continually evolving new and innovative solutions to manage risk. Building Client Brand: conveying bank s experience, culture, due diligence on transactions, credit committee approach, encouraging relationship between bank and underwriter to facilitate placement of transactions (pricing and cover) as well as speedy claims payment. In summary building trust between bank and (re)insurers Analysis: whether macroeconomic via consulting tools such as JLT s World Risk Review and Sunstone, transaction-based in the course of broking an enquiry to insurers, or specific to your use of the insurance market Broking: transactional analysis and management of individual contracts or project requirements for credit and political risk insurance Claims and Recoveries: ensuring timely payment by insurers and that your commercial interests are best addressed in any recovery action 10

12 JLT GROUP JLT is one of the world s leading providers of insurance, reinsurance and employee benefits related advice, brokerage and associated services People 10,000 Revenues of 1.1bn Underlying profit before tax 183m Market capitalisation 2.3bn Premiums placed $16.3bn Over115offices in39 countries More detailed information is available on the Group website Jardine Lloyd Thompson Group plc 2013 year end results 11

13 JLT CPS INTERNATIONAL JLT s Credit, Political & Security risk division is a global practice. 70 specialists in international hubs: Cape Town Dubai London Hong Kong Kuala Lumpur Mumbai New York Paris Sao Paulo Shanghai Singapore Stockholm We share a common strategy, identity and a client first culture. Together we work on a collegiate basis incorporating local knowledge with global reach and international strategy, to pre-empt our clients needs and to deliver to them a competitive advantage. 12

14 CPS MEA TEAM JLT Specialty, London Nick Robson CEO, CPS Tel: JLT Specialty, Dubai (DIFC) Harry Doyne-Ditmas Manager, CPS Tel: Mob: Harry_Doyne-Ditmas@jltgroup.com JLT Specialty, London John Plomer Partner, CPS Tel: John_Plomer@jltgroup.com 13