A ten item Trade credit insurance checklist to help prepare companies for 2012

By Ron Doyle

While we all are wishing for a prosperous, productive and healthy 2012, we have to be realistic. At best, the world economy will experience slow growth or possibly a regional or global recession.

The annual reports of banks should show how much actual exposure they have to toxic sovereign debt and what provisions the banking industry will need to make. The situation will undoubtedly impose a need to raise capital. As I have stated before, this demand will impact the commercial credit markets, as banks will be required to restrict lending and demand higher credit quality.

Another unknown in early 2012 is the impact the sovereign debt will have on the annual reports of insurance companies, which hold “undoubted” sovereign debt in their investment portfolios and in reserves to meet regulatory requirements. With respect to the major credit insurance companies, will we see higher premium rates and tighter credit requirements? The hardening of the credit insurance market is to be expected, given the comments of Mr. Wilfried Verstraete, Chairman of Euler Hermes’ Group Management Board, in an interview with Financial Times Deutschland in late 2011. Verstraete indicated that Euler will have to increase its revenue pool to support the increased credit risk. 

These comments are encouraging because before the 2008 recession and during 2011 premium rates were well below the required levels to support risk exposures, and when the number of overdue accounts and claims increased, some credit insurers reacted by cutting coverage radically, which hurt many policyholders. Most importantly, this precipitous action damaged the reputation of the industry as a whole and reinforced the perception that credit insurance would not be there when the policyholder most needed it.

Looking forward to the coming year, policyholders would be well advised to take the following steps to optimize the coverage under their policies:

1. Ensure that premiums are paid as required and, if your company is insured under a policy allowing for premiums to be paid on the basis of sales declarations, that you are declaring all insured sales in the required manner
2. Report all overdue accounts promptly as required by the policy
3. Do not enter into any Payment Plans with buyers having cash flow problems, without the prior consent of the insurer
4. If your company has a Discretionary Credit Limit in the policy, carefully review the conditions on which credit can be granted and ensure that your company is complying with these conditions for buyers under this limit
5. Hold shipments to buyers with outstanding invoices that are seriously overdue as defined by your policy, and be aware of any changes in the payment patterns of major buyers
6. Make sure all export markets are approved in your company policy and advise the underwriter of any sales arrangements that involve shipping to or from a location or country other than those defined
7. Make sure that your company has the proper documentation, usually a purchase order and invoice, together with the appropriate shipping and delivery documentation, to demonstrate that a buyer has a firm obligation to pay
8. File all claims within the time frames set out in the policy
9. Review credit files to ensure your company has sufficient coverage on buyers and the terms of payment do not exceed the maximum terms in a policy
10. Confirm with the underwriter which accounts are excluded from coverage under the policy

The foregoing list of action items would constitute a good review, but the following point is critical: If there are grey areas in your company’s coverage, or if you have any questions, discuss them with a specialist ICBA broker before a serious problem arises.

(Ron Doyle is a founder of Millennium CreditRisk Management – credit and political risk insurance specialists – www.mcm.ca. ICBA is the world’s largest team of independently-owned, specialist trade credit insurance brokerages. Partners combine local service with global coordination to provide credit and political risk insurance solutions for multinational companies.)

Banks Make Quick Decisions When Better Credit Quality is the Goal

By Ron Doyle

In Canada, we have recently seen two well-established companies filing for protection: Hart Stores Inc. and Norgate Metal. In neither case did the creditors nor the credit insurers suspect that the companies were about to file. In the Hart Stores case, two credit insurers reviewed the portfolio just prior to the company filing and found, that while the company had experienced a small loss at year end and another small loss at the end of the first quarter, there wasn’t any reason to reduce coverage. What wasn’t anticipated: these small losses resulted in the company’s bank refusing to renew the Line of Credit and then the company’s inability to find new financing in today’s market.

Click to read more ...

ICBA Australia and New Zealand now has official licence in Singapore

By Kirk Cheesman, originally published in part, in National Credit Insurance (NCI) News

As of November 27, 2011, ICBA Australia and New Zealand welcomes it's new branch office in Singapore: NCI Brokers (ASIA) PTE LTD.

For two years, NCI has been working towards a licence in Singapore. The approval of this licence is a significant step for ICBA's growth in the Asia Pacific region. Ten year ICBA veteran, Sally Wilkinson has moved to Singapore to set-up the new operations.

ICBA Australia, New Zealand and now Singapore is excited to be able to offer specialist services to clients in Asia from a more local location. After all, ICBA is known for the advantages of its "glocal" service. ICBA currently has offices in 30 countries on five continents. ICBA partners combine local service and expertise with global coordination to provide trade, credit and political risk insurance solutions for multinational companies.

(Kirk Cheesman is Managing Director of ICBA Australia and New Zealand, National Credit Insurance (Brokers) Pty Ltd and a Director of NCI Brokers (Asia) Pte Ltd)

Bank Risk, The New Threat: How credit insurance mitigates this type of exposure

By Ron Doyle

Sovereign entities and various state governments have trillions of Euros in debt, and they continue to run deficits, which will have to be financed. Household debt also continues to rise. Who holds most of this debt? Banks!

The various agencies responsible for monitoring the finances of banks are increasingly concerned and are subjecting more banks to “Stress Tests” to determine if their Balance Sheets would withstand a major drop in the stock markets and increased unemployment. While the interest of government regulators is to be expected, what is more telling and of more concern, is the perception that banks themselves are becoming more restrictive in lending to one another.

Click to read more ...

Political Risk Event of the Month: Argentina's foreign exchange controls

Submitted in part by ICBA Asia, Brazil, India and the USA via the IRC Read & Delete Monthly
 
European countries are not the only ones facing a crisis of currency, credit and confidence these days.  Harkening back to its 2002 debt restructuring, Argentina has introduced new foreign exchange controls to bolster the peso.  The new regulations, which require a tax identification number and verification of funds, have shut down many of the country’s forex offices.  In its first days, The Economist estimates that the currency regime has denied 70% of legitimate hard currency transfers.  Uncertainty has driven investors from peso-denominated funds to expensive dollar-denominated government bonds.
 
The peso has lost a third of its value since Christina Fernandez-Kirchner was elected president in 2007.   Even with her decidedely mixed economic performance, with recent re-election success (last month), she has clearly won an electoral mandate and her party has regained control of Congress.   Thanks largely to strong commodity prices, many Argentinians are, in real terms, much better off now than they were before her first election.  However, in the face of rampant inflation (estimated to be about 25% annually), a ballooning public spending tab, and $9 billion in debt outstanding to the Paris Club, the road ahead will not be easy.
 
The outcome in Argentina won't become clearer until Kirchner announces a new cabinet, sometime closer to December 10, 2011.

(The Political Risk Event of the Month blog post will be a recurring post, on a sporadic basis, at the ICBA blog. ICBA Asia, Brazil, India and the USA, which is International Risk Consultants, Inc. (IRC), has agreed to continue to share these "event" posts with the ICBA blog.)