TRADE CREDIT INSURANCE

OVErVIEW Trade credit insurance is an important trade facilitator insuring around 15% of global trade. Over 95% of private trade credit insurance underwriters are members of the International Credit Insurance & Surety Association (ICISA). The association, founded in 1928, further comprises surety bond companies and reinsurers of trade credit and surety. Trade Credit Insurance a brief introduction Trade credit insurance protects suppliers against the risk of unpaid receivables. It is a first rate instrument for hedging risks and preventing the risk of class claims. But trade credit insurance is much more than insurance: Banks lend more capital against insured receivables Trade credit insurance contributes to increased sales and supports in opening up new markets Premiums are a tax deductible expense under IFRS Trade credit insurance improves the policy holder s credit rating Trade credit insurance saves costs for information, analysis and collection Policy types that are common among trade credit insurance underwriters include: Whole turnover: insuring all receivables whether these concern exports or domestic sales Credit risk and political risk: depending on the country policyholders may opt to also cover the political risk on that country, which is usually added by means of a clause Single risk cover insures sales to one buyer or covers a specific, often complex, transaction, which includes some form of trade finance Pre-credit risk cover: addresses the risk that a manufacturer has in case a buyer goes bankrupt before the goods are delivered. This is particularly helpful in case of custom made goods. Medium term risks: although the majority of underwritten trade credit insurance risks concern short-term credit, there is an increase in private medium term cover which can go up to 5 or 7 years in some cases. Trade in the MENA region Accelerated economic development and growth over the next 5 to 10 years is expected to lead to a growth in trade. Several countries in the region boast low tariff rates, superior infrastructure and low barriers to trade. But this is not the case for every country and overall exports and imports in the MENA region are relatively low as a percentage of GDP, even lower when oil exports are removed. Trade constraints include inadequately accommodating trade policies and customs standards and an opaque legal infrastructure in some countries. The region would benefit from better insolvency legislation, recognition of retention of title and swifter bankruptcy procedures. Another factor that plays a part is political instability, which is detrimental to trade and affects trade flows where this is prevalent. Traders further mention health hazards as a concern when trading in the region. Page 2 INFORMA MIDDLE EAST. All rights reserved

Trade Credit Insurance in the MENA region The fear of non-payment for goods or services supplied to (export) clients is the most common concern cited by the International Trade Survey 2014. The security offered by trade credit insurance becomes most attractive when trading on open account. By extending credit, sellers become more competitive and buyers have more financing options. Trade credit insurance has also demonstrated to be able to offer solutions to banks and other financiers who may be concerned or constrained to lend to SMEs and other traders. Trade credit insurance cover is available in most countries in the region from a variety of underwriters. ICISA members Atradius, Coface and Euler Hermes, as well as the Islamic Corporation for the Insurance of Investments and Export Credit (ICIEC) account for around 85% of market share. Estimated premium for the region is around USD 60m, and the outlook is positive. Demand for credit insurance is on the rise, resulting in increased reported premium. Claims have stabilised, while market conditions are less soft, resulting in somewhat higher premium rates and stricter underwriting in certain cases. To allow trade credit insurers to accept more risks, and subsequently better support traders in the region, a number of concerns are highlighted by underwriters: Financial information, crucial to assessing any risk, is often unreliable and lacks adequate legitimacy Transparency is increasing but as yet insufficient in many countries Political reliability/instability are a concern in some markets An improved insolvency framework is welcomed Global and Regional Trade Snapshot: World Trade Developments: Leading economies of merchandise trade, 2013 IMPORTS US$ BILLION 2800 2400 United States 2000 1600 China 1200 800 Japan France Germany 400 Netherlands 0 0 400 800 1200 1600 2000 2400 2800 IMPORTS US$ BILLION 2800 Page 3 INFORMA MIDDLE EAST. All rights reserved

World merchandise trade volume by region, 2010-2015P Intra- regional trade shares, 2000 and 2013 (Percentage of share) GLOBAL TRADE TRENDS ComposiZon New Players Geography Intra- regional trade shares, 2000 and 2013 (Percentage of share) North America South and Central America 25.1% 26.6% 55.7% 49.2% Europe* Africa 10% 16.2% 73.2% 68.6% Middle East 5.2% 10.1% CIS 19.8% 19.1% Asia 49.1% 53.3% * Europe excluding intra-eu trade 26.3% in 2000 27.5% in 2.13 Source: WTO secretariat Page 4 INFORMA MIDDLE EAST. All rights reserved

GLOBAL TRADE TRENDS ComposiZon New Players Geography Share of total trade between geographic regions in world trade, 1990 and 2013 Share of total trade between geographic regions in world trade, 1990 and 2013 To Asia South and Central America- Asia, 0.8% / 2% North America North America- South and Central America, 2.6% / 2.2% South and Cental America- Europe, 1.6% /1.4% South and Central America North America - Europe, 7.8% / 4.8% North America - Middle East, 0.9% / 1% North America- Africa, 0.7% / 0.5% Europe Europe- Africa, 3.4% / 2.4% Africa Europe- CIS, 3.6% / = Europe- Middle East, 2.5% / 2% Middle East CIS Europe- Asia, 8.1% / 8.3% Middle East- Asia, 3.2% / 5.3% Africa- Asia, 0.6% / 1.9% CIS- Asia, 0.7% / 1.5% Asia North America- Asia, 10.2% / 8.3% To South and Central America Source: WTO secretariat REGIONAL EXPORTS BY DESTINATION Middle East s Merchandise Exports by desznazon, 2005/2013 Middle East's Merchandise Exports by desznazon, 2005/2013 Asia 48% Europe 15% North America 12% Middle East 8% Africa South and 3% Central America 1% CIS 1% Unspecified 15% Europe 11% North America 8% 2005 Middle East 10% 2013 Africa 3% South and Central America 1% CIS 1% Unspecified 15% Asia 52% Page 5 INFORMA MIDDLE EAST. All rights reserved

Middle East s Merchandise Exports by product, 2000-2013 (percent of total exports) Regional Trade Outlook: How has the GCC Performed? Budget Surpluses Inflation Page 6 INFORMA MIDDLE EAST. All rights reserved

GCC Trade (percent of GDP, 2012) Current Trade: Export Markets 2000 % of Total USD bn 1 Japan 23.3 38.3 2 South Korea 11.7 19.2 3 United States 10.6 17.4 4 Singapore 4.8 7.9 5 China 3.6 5.9 6 Netherlands 2.6 4.3 7 Thailand 2.6 4.3 8 France 2.3 3.8 9 Pakistan 2.1 3.4 10 India 1.8 3 2012 of Total % USD bn 1 Japan 15.3 142.9 2 India 10.5 98.4 3,Korea 10.2 95.2 4 China 9.8 91.6 5 United States 7.4 69.3 6 Singapore 4.7 43.7 7 Iran 3.1 28.9 8 Thailand 2.9 27.4 9 Pakistan 1.6 15.4 10 Italy 1.3 12.5 Major Trading Partners: Import Markets 2000 % of Total USD bn 1 United States 13 9.8 2 Japan 10.1 7.6 3 UK 7.1 5.3 4 Germany 7 5.3 5 France 5.2 3.9 6 China 5.1 3.8 7 Italy 4.6 3.4 8 South Korea 4.1 3.1 9 India 4.1 3.1 10 Australia 2.4 1.8 2012 % of Total USD bn 1 China 12.3 59.8 2 India 11.3 54.9 3 United States 11.3 54.9 4 Japan 5.6 27.4 5 Germany 5.3 25.9 6 South Korea 4.4 21.5 7 Italy 3.3 16 8 UK 2.9 14.2 9 Turkey 2.9 14.2 10 France 2.6 12.8 Page 7 INFORMA MIDDLE EAST. All rights reserved

Intra - GCC Trade Trade Credit Insurance Landscape THE CURRENT TRADE CREDIT INSURANCE MARKET Premium income challenged Increased competition In Europe Claims stabilising or decreasing Insolvencies stabilising Soft market with exceptions Ample reinsurance capacity Growth in MENA, Asia & Latin America Trade Finance: lack of trust + Basle II & III Solvency II: implementation 2016 Increasing clients expectations Concerns Political instability and economic volatility in MENA, Southern Europe, Africa (parts) and South America Ned for economic recovery through Financing by banks, Sovereign debt, Solvency II (Europe) and Regulatory The Future New players in the market Low rates vs. High risks Changing shareholders Solvency II - multiline insurers Ample reinsurance capacity Outlook Growth in MENA, Asia, Americas and Europe Hardening markets in UK, Continental Europe and Australia Soft markets in Asian growth economies and USA Advocacy Issues Solvency II / CAT Risk Shadow Banking/Systemic Risk E.U. IAIS PML/LGD Study Financial information in Asia Page 8 INFORMA MIDDLE EAST. All rights reserved

FACTORING BACKED WITH TRADE CREDIT INSURANCE VERSUS FACTORING UNDER A TWO FACTOR ARRANGEMENT A key decision that factoring practitioners often have to take, when presented with a cross-border factoring transaction, is whether to use trade credit insurance or facilitate the transaction through a two factor arrangement. Earlier this year June 2014, on the sidelines of the Annual General Meeting of Factors Chain International (FCI- largest world-wide factoring association) held in Vancouver, this was one of the most common topics of discussion among delegates during the breakaway sessions. Undoubtedly this is a very important consideration for active factors and it would be pertinent to become aware of some of the variables that come into play. Before embarking on a discussion on the relative merits and demerits of the above two options, and given the high degree of unfamiliarity that exists regarding the two factor mechanism it would be in good order to explain how that works. This is best explained with the following diagrammatic representation: a) Protection under a Two Factor arrangement is managed by a correspondent factor termed as the Import Factor. There are 4 agencies involved and while the export factor provides funding to the Exporter or Seller, it is extended on the back of collection and protection services provided by the import factor which is typically based in the country of the Buyer/ Importer. Factoring charges levied on the seller by the Export factor is shared with the import factor in preagreed proportions. b) Protection granted by Factors under Trade Credit Insurance is more widely used and requires less explanation; Under this program Factors provide finance on the back of credit cover extended on buyers from well-established Insurance Providers. Important Considerations: There are several considerations that a Factor has to weigh, before deciding on the best risk mitigation structure, and some of these include the following: Primary Advantages of Two Factor Arrangement: Correspondent Factors are obliged under most Association rules to provide 100 pct cover, whereas most Insurance provide covers for 90% or less. Correspondent factors are more engaged in the transaction as they also get involved with ledger management and dunning processes (following up for payment). Typically the import factor is physically present in the country of Buyer and this fact alone is an extremely powerful consideration in ensuring success of a transaction. Primary Advantages of Trade Credit Insurance: Trade Credit Insurance is generally more cost effective in comparison to a Two factor arrangement, which has more than one bank/factor engaged in the structure. At present geographical coverage of TCI is arguably more robust than Two Factor arrangements. This assumes increased pertinence in the MENA region where there is a paucity of factoring companies; For example KSA which is one of the largest markets in the MENA region, does not have any factors presently operating in the country! It is operationally easier to manage Factoring under TCI than Two factor arrangements which requires membership, knowledge and compliance to membership obligations which is far more onerous than managing an insurance policy. The credit and risk departments within Banks/Factors make a call on an insurance provider based on their credit ratings. In the case of correspondent factors a more detailed analysis is required and that is often a stumbling block. From the above it becomes increasingly clear that there are strengths and weaknesses while using one methodology or another. It is certainly easier for factors/banks to commence with Trade Credit Insurance as initial investment in set-up is easier. Well established factoring entities prefer to have all options and decide on a case by case basis, the best fit for a particular client or transaction against prevailing circumstances. At present there are only a handful of banks in the entire MENA region that can lay claim to having such capabilities. Page 9 INFORMA MIDDLE EAST. All rights reserved

IN CONVErSATION WITH: MAHAN BOLOURCHI, Chief Executive Officer GCC Countries, Euler Hermes, UAE What are the biggest trends in trade credit insurance (TCI) in MENA? Trade Credit Insurance is becoming a very important tool for all SMEs and multinationals operating within GCC and Middle East regions. The UAE has emerged as an important hub for global commerce, with matching infrastructure development for connectivity and logistics support. A major part of these developments are executed by Small and Medium Enterprises (SMEs) as sub-contractors of giant multinationals. However, most of the SMEs do not enjoy, or cannot afford, enough financial and managerial support. It s an oft repeated clamour that SMEs should have access to bank finance at liberal terms. They are in dire need of risk mitigation tools and other instruments. Again, this is where the role of Trade Credit Insurance is felt the most. Trade Credit Insurance is an important tool to protect cash flow and profitability by insuring the companies most important asset trade receivables. Euler Hermes Trade credit insurance solutions can provide adequate cover against payment defaults. What is your current outlook and future projections of key sectors in the region? FMCG, food, logistic, tourism, retail and petrochemical sectors are becoming more and more the key driving sectors within GCC and Middle East regions. Historically and going forward construction, steel and building material sectors remain important as well. Maritime opportunities and an adequate export infrastructure --construction of ports, improved logistics -- are an advantage in terms of international trade. GCC represents an ideal business location as it is a fast growing market offering huge opportunities. How can TCI help businesses grow? On one hand TCI protect SMEs receivables against delays on payments or non-payments, runaway and insolvencies. On the other hand TCI is supporting SMEs funding purpose. All in all TCI supports companies of all sizes and sectors to grow and expand locally and internationally. What are the 3 top tips that you can give to organizations looking to purchase TCI in MENA? TCI delivers a comprehensive protection against the risk of insolvency and non-payments of commercial debt. TCI can reduce the level of bad debt and incidences of fraud TCI improves Days Sales Outstanding (DSO) and on time payment, and supports short term liquidity of SMEs/companies IN CONVErSATION WITH: MADHAVAN RAJAGOPALAN, Trade Finance Products Executive, National Bank of Fujairah, UAE Page 10 INFORMA MIDDLE EAST. All rights reserved

What are the biggest trends in trade/trade finance/tci in MENA? As per ICC Trade & Finance annual publication, Global trade is expected to gradually strengthen through 2016 with a projected annual growth rate of 5.1% (up from 3.1% in 2013) After the financial crisis in 2008 & 2009, global Trade has since recovered, but was sluggish again in 2013 due to flat import demand in developed economies and moderate import growth in developing economies. As per WTO Global trade is forecasted to grow nearly by 4.7% in the year 2014 and another report from ICC indicates that South-South trade has grown by 17% since 2001 and trade volume in MENA region is consistently growing and this growth is not only attributed to conventional Trade Finance products such Letters of Credits, Documentary Collections and Bank guarantees and Trade receivables market is also showing strong growth as International Factoring has grown by 18% in 2012 and many regional financial institutions in the MENA are investing in system infrastructure for financing against Trade receivables which are backed by Trade Credit insurance (TCI). What is your current outlook and future projections of key sectors in the region? Saudi, Qatar and UAE are fast growing economies in MENA region and GCC s expected a growth rate of 4.3% for the year 2014 which will be mainly driven by non-oil sectors. How has TCI helped your business grow? The bank s main focus until few years ago was on Import related financing activities which is now changed and the focus is now on Trade receivable financing. As the bank wants to build up quality assets against its receivable financing, receivables which are backed by TCI is considered as a secured transaction and bank is comfortable in such lending it helps the bank to improve its asset growth. What 3 top tips that you can give to organisations looking to purchase TCI in MENA? a) Even though Credit Insurance covers risk of the buyer, the organization should do their own due diligence on the buyers before supplying goods b) Understand the exclusions in the Credit Insurance and appropriately cover the risk c) Approach financial institution that could finance against TCI and understand their requirements/ terms as well, any banking requirements impacts Credit Insurance policy should be discussed with the Insurance provider for incorporating required terms in the policy. What 3 top tips you can give trading businesses wanting to expand into North & East Africa, South-East Asia, Iran, Iraq and Syria and the Levant Do not engage with countries where political unrest and sanction exist In case, if you are engaging with politically disturbed countries (where no sanction exist) ensure that your credit exposure can be covered with Credit Insurance and your banking partner is willing to finance such exposures, otherwise business cannot generate cash against receivables Ensure all the documentation requirement from TCI and financing bank perspective can be accomplished. What are your top suggestions for new TCI users on claims? Organisation should understand that a claim against TCI takes its own time and conducting their own due diligence on the buyers is imperative Do not engage with buyers who has history of delays and defaults in payments in spite of TCI covers such buyer s risk Be transparent in your approach and inform the insurer and bank on information on the buyer What are your top suggestions for new TCI users on lowering premiums? Deal with the buyers who have public rating and / or whose reputation and financials are good Absence of claim will lower the claim, therefore dealing with the right buyer is imperative, of course where there is a genuine insolvency / non-payment of the buyer insurance will cover the risk Dealing with the right geographies / countries is imperative for lowering the insurance premium, when dealing with high risk geographies / countries premium rates will be higher Page 11 INFORMA MIDDLE EAST. All rights reserved

THANKS Informa Middle East would like to thank all our insurance event speakers for their contributions, with special thanks to: Dr. Ashraf Mahate, Head of Export Market Intelligence, Dubai Exports Dr. Marc Auboin, Counsellor - Economic Research and Statistics Division, World Trade Organisation Madhavan Rajagopalan, Trade Finance Products Executive, National Bank of Fujairah Mahan Bolourchi, Chief Executive Officer GCC countries, Euler Hermes Robert Nijhout, Executive Director, ICISA Previous Sponsors Previous Partners Page 12 INFORMA MIDDLE EAST. All rights reserved

About Informa Middle East Informa Middle East is part of Informa plc, the leading international provider of specialist information and services for the academic and scientific, professional and commercial business communities. Operating in the Middle East since 1993 and with offices now in Dubai, Abu Dhabi and Qatar along with a strong presence in KSA, we are the leading event organiser in the region. Our events business runs conferences, exhibitions and training worldwide with over 30 exhibitions, 50 conferences and 420 training courses every year in the Middle East alone. Key expertise allows us to identify trends ahead of the curve and respond quickly to market needs to bring global thought leaders and industry experts to the region. Informa also provides academics, businesses and individuals with unparalleled knowledge, up-to-the minute information and highly specialist skills and services. Our academic information division publishes books and journals with over 55,000 titles available that provide individuals and organisations with the knowledge they need to deliver success. Our professional and commercial information businesses offer structured databases, subscription-based services, real-time news, research and business critical information creating business advantage. Page 13 INFORMA MIDDLE EAST. All rights reserved

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