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					Cover Story | Private Insurance Roundtable




                           GTR assembled a group of leading brokers and insurers
                           in London to discuss the impact of the crisis on the
                           level of claims in the private trade credit and political
                           risk market, and whether this has limited their capacity.

46 | Global Trade Review                                                               www.gtreview.com
                                                                                      Private Insurance Roundtable | Cover Story




         insu rers
Pri vate
           emerge  resolute from c
                                   risis
Flint: This has been a torrid period,         catastrophe of the nature that they tend to    Ross: I think that for the reinsurers, the
for insurers and those whom they              deal with in most years. So I don’t think we   test of their appetite for this class of
insure alike. Are there going to be           are or should be expecting to see a series     business will come when their treaties
casualties?                                   of insurers heading into insolvency, but       come up for renewal. You may well see
                                              possibly reducing participation, or being      some casualties there.
Robson: On the question of insurers           forced to reduce because reinsurance is
folding, I think it is highly unlikely at     being reduced, or choosing to exit.            Berry: But withdrawing or reducing
the moment that any of our insurers                                                          capacity is a completely different issue to
will collapse into insolvency as a            Berry: Whatever the claims number is,          an insurer folding.
consequence of their credit and political     it’s a big number for the PRI market, but
risk losses. That they may exit our           it’s not a big number for the insurance        Sanders: I think we can be pretty satisfied
marketplace, or reduce what they do, is       industry.                                      at how the trade and investment insurance
quite possible. You need to look at what                                                     community has come through this period.
we’ve experienced so far in the context of    Brownlees: Most insurers are multi-line        Crucially, this market has stayed open.
the insurance market at large.                insurers anyway, that cover themselves         While lots of other markets have closed
Depending on whose estimate you listen        with a portfolio of different business         altogether, we have continued to service
to, and in which week you talk to them,       classes.                                       our clients, and our products have been
and whether it’s the two or four or five                                                     seen to respond.
billion dollar number for structured credit   De Haldevang: That’s true, but I don’t
and political risk losses, or something       necessarily think that multi-line insurers     Robson: Staying open when the
lesser, that, to our insurance market,        don’t review their position in that part of    syndications part of the market has
still represents a modest-sized natural       the market.                                    disappeared, when the enormous liquidity
                                                                                             of the CDS market in recent years has just
                                                                                             evaporated, it was a hugely valuable thing
                                                                                             to do. To do that, and to pay the claims,
                     Roundtable participants                                                 these things are fantastic though they are
                                                                                             also what we expect.
   Chairman: Peter Flint, head of international arbitration, Barlow Lyde &                   Just yesterday I was talking to a client,
   Gilbert                                                                                   finalising a claim negotiation, who intends,
   Kit Brownlees, managing director, political, project and credit risks, AJ Gallagher       as a direct consequence of the good
   Charles Berry, chairman, BPL Global                                                       performance of the insurance market, to
   Olivier David, head of special products, Atradius                                         step up their use of insurance, and will buy
   Mark Cooper, managing director, TFC Brokerage                                             considerably more going forward where
   Claire Simpson, political risk underwriter, Hiscox                                        they can.
   David Neckar, product development director, political and credit risks, Willis
   Peter Sprent, deputy head, political risk and credit, Ace Global Markets                  Lennard: I think it has been a milestone
   Paul Sanders, AVP, Zurich EMS in London                                                   year for the market. The day of reckoning
   Nick Robson, head of credit and political risk, JLT Solutions                             came this year, and the insurance market
   Neil Ross, senior vice-president trade credit, AIG (Chartis)                              has responded precisely as we had hoped.
   Andy Lennard, director and founder, Texel Finance                                         I do feel though that there are one or two
   Bernard de Haldevang, head of financial and political risks, Aspen Insurance UK           stories out there, whether it be bad broker
                                                                                             placement, or insureds not behaving

www.gtreview.com                                                                                              November/December 2009 | 47
Cover Story | Private Insurance Roundtable

properly and understanding what they             Neckar: We will be comparing premium           adjusting side of things were not initially
actually signed up to.                           payments against claims payments as well.      geared up, so it has taken some time, and I
You are going to get that in any market,         We are also making sure that we make it        would expect to see improvements.
and, obviously, time will tell how many          clear that it is the due date adjusted for
insureds do finally get their claims paid        the cash transfer process, but we don’t        Neckar: I don’t think that we, as a
and what impact that has on various              want to get into that kind of detail. The      community, have totally cottoned onto the
brokers’ E & O [errors & omissions]              fact is, we are tracking it, and we will be    fact that our banking clients regard time as
insurance. But, by and large, it has proved      sharing that data with underwriters and        money. And there is no excuse. Imagine that
to be the landmark year that those of us         with clients, as it is very instructive.       you have concluded a forward exchange
who have been around for a few years                                                            contract, and you expect delivery of dollars
have probably waited for.                        Sanders: I think that’s quite a harsh          at a certain date, and then your bank says
                                                 approach to take, because, first and           ‘unfortunately, I’m, terribly sorry, but Mavis
Robson: That points back to the product.         foremost, there were doubts among              is ill this week, and we haven’t really got
Everyone here, I’m sure would probably           financial institutions over whether this       the backlog sorted out’. Well that message
agree that this is a product which did not       product would perform well under stress        really doesn’t work.
need to revalidate itself.                       testing, as it has been.
There have been landmark years before,           From what we are hearing, it has on most       Brownlees: That’s a very valid point. Some
and claims paid, but what was critical           occasions. There has been a large volume       insurers – but not all – just don’t have the
this year was that over the last five years      of claims in the market. I think it tends to   back offices to cope with claims in a timely
banks had become the majority buyers             happen once in every 10 years, and I think     manner, and that’s been amply proved in
of the product, which had developed and          that the back-office procedures and loss       the last year or so.
became clearer for the purposes of Basel
II, and this was the first test of the product
in the Basel II context. The re-validation         “There has been a large volume of claims in the
of the product in the current context has
been particularly valuable.
                                                   market. I think that the back-office procedures
                                                   were not initially geared up.”
Neckar: These are still early days yet.
                                                   Paul Sanders, Zurich
But you’re right – it is great that we have
got through what we have. But what
we shouldn’t be doing is congratulating
ourselves that this product is performing.
You say to a bank that this is great news
that claims have been paid. Well, that’s
what is supposed to happen, isn’t it?
I think the issue that’s coming up, taking on
the Basel II point, is timeliness. What we’ve
noticed as the year has gone by, from our
perspective, and what we’re tracking, is
the time from settlement date to payment
date. We now have a table, which is
tracked for quantum against time, which
we are intending to share with clients and
underwriters. As we go through the year,
we can see that some insurers have been
performing promptly, and others have
been performing less promptly.

Flint: Talking about the timeliness
of paying claims, how do you define
‘promptly’ in a claim situation?

Neckar: It is very straightforward. There’s
a claims settlement due date in the
policy. We are tracking it from that date,
whether it be from the waiting period or
the agreement of the proof of loss. So from
that, it is very, very clear. We can say that
from the date at which payment is due,
under the policy, we now have a clear
table of performance.

David: Are you comparing the settlement
against the time that the insured actually
paid the premium?


48 | Global Trade Review
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                  www.gtreview.com                                                                                                                                                                           November/December 2009 | 49
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Cover Story | Private Insurance Roundtable

                                                                                               interests to be paying losses late unless
                                                                                               they believe that there is a genuine reason
                                                                                               not to be paying a claim in the first place.

                                                                                               David: From your experience, when are
                                                                                               the claims being paid?

                                                                                               Neckar: We have a wide range of people
                                                                                               who pay within four days, and within 70
                                                                                               days, on our initial calculation.

                                                                                               Flint: What are the effects of these
                                                                                               losses on the reinsurance market?

                                                                                               Robson: Returning to the reinsurance
                                                                                               ramifications. We have surveyed quite a
                                                                                               few insurers, and a number of reinsurers
                                                                                               recently, to put some kind of sense on the
                                                                                               impact of losses.
                                                                                               The rough number that came back was
                                                                                               that, in aggregate, there would be a
                                                                                               reduction in what we’d call structured
                                                                                               credit and political risk insurance capacity
                                                                                               of 20% in 2010.
                                                                                               This said, I think an aggregate 20%
                                                                                               reduction is something we can probably
                                                                                               cope with due to what’s happened
                                                                                               in terms of reduction in world trade,
                                                                                               commodity prices and so on. The
                                                                                               other side of it, which I’m slightly more
                                                                                               concerned about, is the possible negative
                                                                                               influence of reinsurers on the actual terms
                                                                                               and conditions of the product, without
                                                                                               necessarily understanding the nuance
                                                                                               and detail associated with some of the
   “I think that distinction between trade, and non-                                           advances we have made in the clarity and
                                                                                               value of our products in recent years.
   trade, or synthetic trade is going to be a key.”                                            We have experienced some negotiations in
                                                                                               recent weeks where insurers have advised
   Peter Sprent, Ace Global Markets
                                                                                               that some aspects of wordings that have
                                                                                               been in place for the past few years need
                                                                                               to be revisited due to, among other issues,
Brownlees: Is there enough general             the market, the assumption is still that you    reinsurer concerns. My concern is that
infrastructure, not just amongst the           have got to litigate, but that’s just a myth.   we may put at risk the very high current
brokers and the insurers, but among the        It didn’t need re-validating to people who      level of goodwill among bank clients,
lawyers and loss adjusters?                    have looked at the claims performance in        having had such a successful year with
                                               the past. But, as you say, we have a new        the product, by going backwards on the
David: You cannot have the structure to        audience, and on the whole, with the few        positive advances in conditionality that did
deal with a perfect storm on a regular         exceptional cases that we all have, the         not and wouldn’t have changed the claims
basis. We have never seen that many            product is working, albeit not always quite     situation. I don’t think it’s a huge problem
claims, for such an amount. We could not,      as cleanly as we would like.                    but I do see some issues emerging, linked
as underwriters, have had enough back-up                                                       to Basel II.
people, or loss adjusters, ready to do that.   Neckar: Basel II says it must be a timely
For the past 10 years, they would have         payment of claims. And the difficulty is        Flint: There are many young bankers
been paid for doing nothing.                   that if there are any delays – and we are       who haven’t experienced a full-
                                               all part of the chain, brokers as well as       scale crisis before. Do you think it
Neckar: I don’t necessarily agree with         underwriters – the damage done from one         might have been difficult for them
that. We’ve had at least a year since          poor performance has a disproportionate         to persuade themselves and their
Lehmans went down. If you are under-           effect throughout the entire community,         customers to incur the cost of
resourced, there are other options.            and that’s just something we have to            insuring these transactions?
                                               recognise.
Berry: The message should still be that we                                                     Lennard: I think one has to make a
have come quite a long way, if the debate      Sprent: Our market has been very open           distinction between bankers that have
about claims is whether you’re getting it      to addressing these issues such as              funded trade, and bankers that have used
on the due date or 60 days later.              late payment interest, claims payment           trade as an instrument for investment.
Among many people who are not close to         timetables and so on. It’s not in insurers’     Within that distinction, there are banks that

50 | Global Trade Review                                                                                                   www.gtreview.com
                                                                                       Private Insurance Roundtable | Cover Story

have funded trade for the last hundreds of      in Kazakhstan for the Alliance Bank            accepting that as a concept. But we are
years, and those that go in and out.            restructuring holds lessons for all of us.     in a situation where we are putting that to
The latter, to my mind, have no place in        From our perspective, going forward, the       the test as a market, to see how it does
the arena that we all work in. Those that       difference will be that we will be focusing    actually work out.
are consistent, and have been in there in       on the old-fashioned definition of trade.
the years that we have all been exposed                                                        Sanders: I think Zurich is relatively
to, are the ones that constantly buy the        De Haldevang: I agree with you that            relaxed about the reinsurance schemes as
product, or are learning that they have         just because a transaction has got trade       well. We expect to be offering the same
to buy the product, because it is the only      in front of it, it doesn’t mean that it is     capabilities next year with or without
stable, consistent, syndicating party.          necessarily good, and because it doesn’t,      reinsurance.
You can’t sell risk to 40 banks anymore         it’s necessarily bad, but that’s another
on a trade transaction. So those bankers        issue I think.                                 Simpson: There are a number of players
know they have to reply on the other            I wouldn’t necessarily subscribe to sticking   of course who don’t buy any reinsurance.
syndicating channels, which now consist of      to pure trade. I think it’s more a question    We are going to be maintaining the same
a handful of hedge funds, and a multitude       of knowing what you are getting into, and      country and credit lines going forward, so
of insurers, but that’s it.                     working out what’s going to happen to it       I think there is a positive story to tell there.
                                                when it goes wrong.                            About the people whose management is
Sprent: I think that distinction between        Kazakhstan is an interesting one, but it’s     still incredibly supportive about this class
trade, and non-trade, or synthetic trade        unclear how it’s going to be treated, and      of business, and want to see it grow going
is going to be a key. But I don’t recognise     how that’s going to affect the market. But     forward, off the back of the problems that
those comments made in terms of the             I also don’t recognise the comment about       we have seen over the past year.
responses or discussion that we are having      the reinsurers. We have been having a
with reinsurers.                                debate with our reinsurers on this very        Flint: Let’s expand on this issue of
Where underwriters have to hold up their        issue of whether or not having trade in        capacity levels.
hands on lessons learned is that we didn’t      front of it makes it bad. And they are
stick to what we really knew and what we
have always been good at, which is proper
trade, and not getting involved in loans          “The structured credit area is going to be hit
to banks that are made to look like trade.
Or letters of credit, in respect of financing
                                                  pretty hard in terms of capacity, which is going to
goods that actually aren’t going to end up        produce a pretty hard market for that product.”
in the country where the emerging market
                                                  Charles Berry, BPL Global
bank is anyway.
The definition of the trade debt used




www.gtreview.com                                                                                                 November/December 2009 | 51
Cover Story | Private Insurance Roundtable

                                                                                                   one can be quite brutal, as an insurer, and
                                                                                                   as a broker, to ask which side of the fence
                                                                                                   they sit on. Are you a lender, are you a
                                                                                                   facilitator, are you a taker of risk? Because
                                                                                                   the market will only support a defined role,
                                                                                                   which has to be produced upfront in order
                                                                                                   to get the capacity necessary, in order to
                                                                                                   achieve the end result. I think the blurring
                                                                                                   of various roles has caused damage,
                                                                                                   although I don’t know how much.

                                                                                                   Robson: During our survey of a number of
                                                                                                   insurers, one of the consistent themes
                                                                                                   was the absolute focus on who you
                                                                                                   are insuring. For some years we have
                                                                                                   increasingly focused on what risk has been
                                                                                                   insured but at the expense at times of who
                                                                                                   has been insured, which is particularly
                                                                                                   important for an indemnity product.
                                                                                                   Now there is a re-focus on your client
                                                                                                   and how they operate and perform. A
                                                                                                   widespread comment was that we are
                                                                                                   absolutely there for the key clients, who
                                                                                                   we really believe are there with the same
                                                                                                   products, support and procedures and so
                                                                                                   on. And that’s a very positive message,
                                                                                                   but it does mean that there is perhaps
                                                                                                   a more peripheral group of clients or
                                                                                                   irregular users or entities that have had
                                                                                                   strained dialogue with underwriters
                                                                                                   through claims processes that will find
                                                                                                   it to be a more challenging place to buy
                                                                                                   protection next year.

                                                                                                   Flint: In terms of insurers’ country
                                                                                                   ceilings, where is capacity currently
                                                                                                   lacking?
   “Our corporate clients are increasingly concerned                                               Brownlees: On country ceilings, from
   about credit and counterparty risk.”                                                            our point of view, as brokers, we just find
                                                                                                   insurers being very selective, which is not
   Kit Brownlees, AJ Gallagher
                                                                                                   a bad thing, actually.

                                                                                                   Sprent: It’s a matter of appetite, and the
Berry: There is some uncertainty about            business that we support, it’s had a bad         experience that the underwriter is having
what the capacity of the market is going to       time, what are the opportunities going           in certain countries. We are learning new
be next year. Our feeling is that the pure,       forward, and what should we do in the            things about the way that countries deal
traditional political risk lines are going to     changing environment’. That is a very            with crises and banking problems. So I
lose a little bit of capacity, but not anything   healthy sign.                                    think it’s more a case of underwriters
of any significance. The structured credit                                                         being very selective, and also looking at
area is going to be hit pretty hard in terms      Berry: It comes back to the point that all of    who they are insuring, going back to the
of capacity, which is going to produce            what we do, and want to continue doing,          previous point.
a pretty hard market for that product,            does not fit neatly into this trade box. I
which is going to mean that it is extremely       do think though, that, fundamentally, our        De Haldevang: I think the other factor
profitable.                                       class of business supports what people           on the country scene, is that ceilings can
What is different today is that while this        are now calling the utility side of the          be affected by erosions through claims
is not the first time that the PRI market         banking industry, and basically doesn’t          payments, and they can be affected by
has had a large wave of claims coming             go anywhere near the casino side of the          events in those countries. However I don’t
through, there is actually a new maturity in      banking industry. That distinction is now a      think that for the right deal, in this market,
the market generally. This time around the        well-understood distinction – we’re firmly       there is any problem in any particular
PRI market is being viewed as just another        in the business of supporting lending from       country.
established class of business. We are not         banks to real businesses.
having any of the ‘well, this is a class of                                                        Sanders: They are also affected by
business that we should never have been           Lennard: It is not just the banks, but the       demand, and demand has been right
doing in the first place’ reactions.              providers of capital. These are the traders      down across the board this year in these
It is more a case of ‘well, this is a class of    and to a lesser extent the banks. I think that   countries.

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Cover Story | Private Insurance Roundtable




Ross: We would certainly grade countries,
and our appetite and capacity is very much
                                                    “The issues that we will have to deal with
dictated by that. As we have seen, many             increasingly will be business interruption, and
countries have been downgraded over
the last 12 months, and that has certainly
                                                    products like trade disruption. ”
affected our appetite.                              David Neckar, Willis


De Haldevang: And you’d expect that on
the trade credit side. On the medium-term         Ukraine? There is no question in my mind       woken up to the fact that pure political
secured side, that’s less of an issue. It’s the   that the Chinese, and to a much lesser         risk – I’m talking about the 20% of our
transaction itself and the security behind        extent the Russians, are playing some          market that deals with confiscation and
the transaction that gives us our internal        games that will become quite apparent in       political violence and so on – has moved
view of how that risk should be rated.            the next 12 to 18 months, particularly if      up the agenda in companies. We see
                                                  you expect China to continue growing at 7      opportunities in that area that were visible
David: I agree with that, and would like to       or 8%. Is that resource nationalism, or just   18 months ago.
say that we have some countries where             the re-alignment of global forces? Certainly
we see business going to develop, and             Chavez and his friends in Beijing are going    Sprent: At the start of this year, we built
for which appetite is there, like China and       to get closer. And then you have the Cuba      into our plans that there would be this
other Asian countries, for example. But at        issue. At some point in time, the Cubans       heightened perception of risk, and that we
some point, eventually, the portfolio might       are going to have to turn around and talk      would begin to make more use of our pure
become unbalanced and we might then               to the US as the Castro family ages.           political risk capacity. Perhaps because of
see certain issues there.                                                                        the huge pressure on corporate budgets,
                                                  Berry: What you might call the western         which is pushing people to keep their
Flint: Which regions are you seeing               crisis – because this has been a crisis that   expenses down, it still seems to be viewed
interesting developments or potential             originated in the West, and has had its        – except for a few extreme circumstances
problems?                                         biggest impact in the West – has certainly     – as a discretionary spend within an
                                                  produced a fundamental shift in the            overall insurance budget. It’s not like
Lennard: The role of China over the next          geopolitics. But back to this question of      employers liability insurance that you have
few years is intriguing. I would say they         whether there has been an effect upon the      to buy. It’s a ‘nice to have’. Also, clients’
are certainly having a much harder time           perception of clients about these risks – I    expectations of pricing, compared to what
in Africa than they first envisaged. And          actually think there has been. Starting last   underwriters are prepared to give, are
what will the Russians do this winter in the      September, people finally seem to have         miles apart from each other.

54 | Global Trade Review                                                                                                     www.gtreview.com
                                                                                              Private Insurance Roundtable | Cover Story

Brownlees: Yes, I think our corporate               interruption losses, under a bilateral            the extent that they had lost all of their
clients are increasingly concerned about            investment treaty (BIT).                          rights of recourse.
credit and counterparty risk, which is
good, but they are not rushing to take out          Sprent: Another factor that we have to            Neckar: Those circumstances were there
confiscation-type risks.                            be very conscious of came up in a recent          before the risk was written. Staying on
                                                    survey I was looking at. This indicated           this theme, we were talking recently to
De Haldevang: The market has seen                   that the expectation of major western             an export credit agency (ECA), which
a fall in income and a rise in claims on            multinationals, looking forward to 2010-          said they were dealing with a client that
the default side, and some parts of the             12, was that they are not looking to              wanted to make a resource investment in
market are wanting to re-focus on what              expand greatly in terms of foreign direct         similar circumstances, where they wanted
they see as the traditional political risk          investment. Where the FDI is coming               to cover the actions of the local courts
markets area of CF (contract frustration)           from is places like Brazil and China, and         because they saw them as an extension
and CEN (confiscation, expropriation                companies in those markets have a                 of the country’s government, and not an
and nationalisation), and so there is an            very different attitude to risk and return,       independent judiciary as we have in more
element of unrealistic competition going            especially the Chinese. We are not yet            developed countries.
on in the pricing, even though the CEN              able to fully penetrate those markets in          One point here is how the perception of
market is probably less lively in terms of          terms of servicing them, and convincing           risk is leading people to look at different
claims than it has been in the past few             those companies that they need our                coverages, which are not necessarily
years. There is a strange pattern going on          products.                                         available, and we know that the whole
there, which is not tenable. So you have a                                                            purpose of this market is to be flexible.
lot of different forces.                            De Haldevang: I think there is a general,         Stepping on from that, why is it that the
                                                    fairly stable trend though in those               ECAs sometimes get treated differently
Sprent: Also, the losses in the market              emerging markets, which quite like FDI,           to the private market, in that the buying
have seen a re-focusing among insurers on           but don’t want to lose control of their           of political risk from ECAs is often a much
their return on capital, and thus on pricing.       assets, and so will often maintain a              simpler proposition?
Even though the claims in the past have             controlling host stake. This still allows new
been low, there has been more activity              investments to come in.                           Flint: Regionally speaking, which
recently. The pricing has been so low,                                                                markets are proving interesting to
and I think there will be minimum pricing           Berry: To bring us back to the insurance          you?
thresholds, which insurers will be looking          market, I do think it’s true that the
for going forward. At the moment, there is          perception of risk is fundamentally               Lennard: Brazil probably interests all of
this gap in expectations on both sides.             different to what it was. I do agree that it’s    us, as it has now got the Olympics, the
                                                    pretty difficult to translate that increased      World Cup coming up, and huge quantities
Flint: There may be a distinction                   perception among our traditional client           of oil have also been discovered. Out of all
between political risk insuring trade,              base into insurance dollars in the bank.          the South American countries, they seem
and selling political risk insurance for            I continue to think that a significant part       to have weathered the storm extremely
big projects, In terms of the size of               of the reason for that is because the             well. But, given the fact that there have
the claims which might be generated.                traditional products that we offer them           been some defaults in certain sectors,
Is that a factor, from a pure political             aren’t quite right in this area.                  what is the underwriters’ view on medium-
risk perspective?                                                                                     term risk in Brazil, and their appetite to
                                                    Simpson: That’s exactly the point.                underwrite the risk there?
Berry: What I think we are seeing is more           Contract frustration and credit are very
people being much more aware of country             saleable products. If you don’t get paid, or      De Haldevang: It’s a sector-related
risk, and political risk, as well as credit risk.   goods and equipment are not delivered,            problem. People were underwriting short-
                                                    you are going to get your claim paid.             term commodities on a long-term basis,
Neckar: It’s inescapable, these things              Whereas investment insurance, for me, can         and things went wrong. I think Brazil has
have cycles. Now that the benign cycle              be a much more complicated area. Unless           fantastic opportunities, particularly the
has finished, companies are looking much            it’s a straight smash-and-grab, working out       resource sector.
more closely at their budgets, and it’s not         whether there has been an expropriatory
as easy to access the insurance budget to           act can be problematic. So if you are a           Lennard: There is certainly a move to
buy political risk cover. One of the reasons        client, that’s a luxury item, isn’t it, because   expand the licensing to allow more foreign
for the growth of the credit side of the            there is less certainty?                          insurance companies in there. And there
political risk market is that the insurance                                                           is a desire by the Brazilian government
can make the transaction happen, so it’s a          Flint: Quite an important point arises            to expand the use of insurance away
cost which is paid for in the transaction.          out of that. Expropriation of substantial         from federal insurance companies. Is that
By contrast the payment for protection of           investments isn’t subjective, because             something that the insurance market here
an asset against expropriation is a drag on         there is a huge body of jurisprudence as          wishes to embrace?
the business’ operating costs. And I think          to what constitutes expropriation, and
the issues that we will have to deal with           what doesn’t.                                     David: If Brazil allowed licences to western
increasingly will be business interruption,         Examples range from a government                  insurers to write credit and political risk
and products like trade disruption. People          setting a discriminatory tax, to an ICSID         business for their exports, or credit for
are going to be less worried about their            arbitration in which I was involved a few         their domestic business, it would certainly
assets, than the impact on their earnings           years ago where it was alleged that the           make a huge difference for our business
and their stock price. The question to              court system in India, being an organ of          and would strongly support their local
come back to, perhaps, is whether it is             government, had abused their position             industry, creating a win-win situation. We
possible to claim for P&L-type, business            towards investors in a power project, to          feel the same about China or India.

www.gtreview.com                                                                                                       November/December 2009 | 55
Cover Story | Private Insurance Roundtable

Neckar: The problem with Brazil, if you         Flint: Can we move on to pricing                commodity finance results, and think –
go back, is that the IRB (Brazil’s federally    issues?                                         that’s the area we need to be in, given that
controlled reinsurer) occupied a dominant                                                       reinsurance support is generally available.
role that was both statutory and also had       Lennard: I know that brokers have               That would then push prices down again in
an underlying frictional cost. That market      certainly benefited from the rise in premia,    that area.
has to clean its act up, so that there          but how do insurers see it over the next
is a clear ability to issue paper that a        year. Do you see rates staying at these         Sanders: We also need to be realistic, and
corporate will find acceptable. It will take    levels for the structured trade product?        acknowledge the fact, that, to a degree,
a while.                                                                                        banks are a major part of our business.
                                                Sprent: Talking generally, a key focus has      And to a degree we are somewhat capped
De Haldevang: This is where Lloyd’s has         to be the results for certain sectors of our    in terms of what we can charge by what
a huge advantage, as it already has a foot      business like structured trade credit, and      they can charge.
in there. It is quite attractive from that      sectors within that area, such as letters of
perspective.                                    credit, which have generated huge flows of      Lennard: For the borrower, irrespective
                                                business into our market.                       that margin has increased dramatically, this
Sprent: I think the potential in Brazil         But if you talk to certain underwriters their   is still, on a net present value basis, the
is huge. We have seen a significant             loss ratios are several 100% for letters of     cheapest time to borrow. I think that there
improvement there as a place to do              credit. If we are going to continue to get      will only be a certain few names that can
business over the past two to three years.      support from our capital providers and          go to their local bond market.
I think it is still very much a question of     reinsurers in that line of business, then we    The rest are going to have to use the
picking the right partners, as there is still   will have to show better returns, meaning       structured product, and whether it is
an inherent risk in doing business in Brazil.   that we have got to have higher pricing         two years, with six months grace, or
Also, there is so much liquidity in the local   than before going into this crisis.             three years with one year’s grace, we are
market already, as shown by Santander’s         With regard to the contraction of capacity      going to see names that you have been
recent IPO. They are throwing money at          that we are going to see going forward in       underwriting for the past five to seven
every sector, cutting down the need for         the structured trade credit market, prices      years, coming in and borrowing as much
cross-border lending into Brazil. So there      will continue to rise. My fear is that people   as they can. There are likely to be capacity
isn’t much demand for our products, and         withdrawing from the structured trade           issues, and I think the pricing will stay up.
when there is, pricing is very low.             product will look at their political risk and




                   !
             R  RY                                                  This forum will have a practical approach to enable both
          HU                                                        attendees and speakers to gather needed information,
                                                                    network and build personal relations with business and
                               rs/
                     0 exporte                                      political players to take advantage of business opportunities
         The first 2 istered will
                    reg                                             in Russia and Eurasia.
        importers limentary
           gain comp                                                With a market of over 270 million inhabitants the region has
                          the
               access to                                            abundant trade potential extending far beyond the traditional
                 c onference                                        opportunities provided by its natural resources.
                                                                    Leading topics that will be discussed include:
                                                                    • Assessing the business environment in the region: how
                                                                       has the banking sector adapted to the economic crisis?
                                                                    • Facilitating trade finance: addressing financing issues
                                                                       within the global supply chain
                                                                    • How likely are banks in the region to honour their trade
      3rd Annual                                                       finance debts?
                                                                    • Trade risk management: guarding against risk in difficult

      Russia and Eurasia                                               economic times
                                                                    • Country focus and case studies: Azerbaijan, Belarus,
                                                                       Kazakhstan and Ukraine
      Trade and Investment Forum                                    • Commodity financing and natural resources: coping with
                                                                       fluctuating prices and reducing oil dependence
      February 8-9, 2010 | Moscow, Russia                           • Infrastructure financing and development: opportunities
                                                                       for investors




56 | Global Trade Review                                                                                                    www.gtreview.com
                                                                                                           Strapline




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      www.gtreview.com                                                                     November/December 2009 | 57

				
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