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Coface Country Risk Conference 2007
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
Political & Commercial
Political only
1 1.5 2 3 4 5 7 10 15
CSLLIBLIMITPWHTAL
Ark5
AtriumEIC1
FCIAHCCHISKLNLIUNVARTHUnistrat
AFBSJC4
ACEChubbSovereign
AIGONDD2
Zurich
CofaceEulerH
AIGQBE
DucroireSJC4
CSLKLNLIBPWH
ACE3
AFBArk5
AtriumChubbEIC1
FCIAHCCLIUNVAUnistrat
Trade related single obligor risks
Zurich ONDD2
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
Atradius
Atradius
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!
“Failure to pay”policies
PRI only / miscpolicies
Total
Problem resolved
Full Settlement
Compromised
Deniedof which - paid after arbitration - arbitration lost - denial accepted
Pending
Totals
55
159
6
3
02
15
240
10
24
8
1
01
4
48
65
183
14
4
03
19
288
Source: BPL Global Claims Dept.
Claims from 1983to May 2007
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