The changing shape of political risks insurance

							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
                                 Trade related single obligor risks
                 Coface         AIG             Ducroire               CSL           Atradius        ACE3              Zurich                        ONDD2
                 EulerH         QBE             SJC4                   KLN                           AFB
                                                                       LIB                           Ark5
                                                                       PWH                           Atrium
 Political &                                                                                         Chubb
Commercial                                                                                           EIC1
                                                                                                     FCIA
                                                                                                     HCC
                                                                                                     LIU
                                                                                                     NVA
                                                                                                     Unistrat


                                                                       CSL           Atradius         Ark5            AFB           ACE              AIG
                                                                       LIB                            Atrium          SJC4          Chubb            ONDD2
                                                                       LIMIT                          EIC1                          Sovereign        Zurich
                                                                       PWH                            FCIA
                                                                       TAL                            HCC
Political only                                                                                        HIS
                                                                                                      KLN
                                                                                                      LIU
                                                                                                      NVA
                                                                                                      RTH
                                                                                                      Unistrat


                       1              1.5                  2                   3              4                5                7               10       15

                                                               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


                                                                                       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!

       Claims from 1983                  “Failure to pay”         PRI only / misc         Total
       to May 2007                           policies                policies


  Problem resolved                           55                       10                  65

  Full Settlement                           159                       24                183

  Compromised                                  6                       8                  14

  Denied
  of which
       - paid after                            3                       1                   4
         arbitration
       - arbitration lost                      0                       0                   0
       - denial accepted                       2                       1                   3

  Pending                                    15                        4                  19

              Totals                        240                       48                288


       Source: BPL Global Claims Dept.                                              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

                                     Coface Country Risk Conference 2007