ICBA

Mix the Global Financial Crisis (GFC) and high credit insurance claims, and the result: Credit Over-Cooked

2010-02-25T22:05:27Z

By Kirk Cheesman

While the Australian economy, generally speaking, was stimulated during 2009 to a quick recovery, there were more underlying insolvencies and bad debt occurrences than ever before.

ICBA Australia’s claims statistics for 2009 show credit insurance claims jumped by close to 300% on the previous year.

Keeping the above in mind, there are a few current items to note:

1. Many businesses, during the GFC, reduced staffing levels, stock and overheads to cope with the reduction in trade. Now, as the economy and trading levels build, these businesses may have difficulty “turning on the tap” quickly to gear up for new projects.

2. Certain financial institutions will simply not have the funds available to assist and support businesses needing cash injections, or to increase over-drafts to manage trade recovery. Alternative financing has all but disappeared during the GFC and major bank competition has eased. Put simply, there is not enough global funding to support all businesses throughout the recovery.

3. In Australia, there’s an “unknown factor”. In this country we have an unknown quantity of business tax bills and we do not know how the Australian Taxation Office (ATO) will recover these amounts.

In such an environment, these three questions need to be answered by debtors in reviewing their ability to repay creditors:

What capital is available to your business?
How much do you owe the banks and can you re-pay?
Are you up-to-date with your ATO payments?

Increased information flow - including up-to-date financial figures (identifying capital), questions relating to bank financing (highlighting cash available and key repayment dates) and information in regards to tax payments - is crucial in the next 12 months.

For all of the above reasons, the global credit insurance industry is placing more emphasis on obtaining key data and current information from debtors. It is clearly better to identify, at an early stage, a debtor’s ability to pay. Also, ”Blue Chip” or “long time” customers should not be excluded from this process. As we all know, many long-term businesses have failed during the Global Financial Crisis, mainly due to debt and funding issues and the inability to pay financiers as items fall due.

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

Credit insurance brokers improve performance and results by using yesterday’s progress as the zero point and aiming higher each day

2010-02-23T16:04:06Z

By Rob Downey

Commercial airline passengers benefit everyday from flight crews who, by law, tradition and training, follow pre-flight checklists. My view is that the use of checklists to maintain high standards in the performance of important recurring team tasks should be studied in business schools. What has this got to do with trade credit insurance, trade finance and the management of political risks? ICBA USA uses a wide variety of lists in our global brokerage business to assist, educate, and guide ourselves as well as our global credit-insured clientele.

One of the most recent and striking confirmations of the efficacy of using lists as touchstones to guide high performance comes from the medical profession. In case you have not heard it, I synopsize below the story of how empowered nurses armed with checklists in the Intensive Care Unit (ICU) at Johns Hopkins Medical Center managed to dramatically improve patient outcomes at what was already one of the world’s finest hospitals.

ICBA members collaborate to solve buyer capacity issues for a major ICBA member client

2010-02-11T22:01:41Z

By Mark Attley

It's a marketer's function to present and communicate the attributes of an organization in the most favourable light possible to the target audience. Since the "proof of the pudding is in the eating", how good we say or think we are is irrelevant unless our customers experience it and tell us so. ICBA's mantra is "trade credit solutions for multinational companies" and when two or more ICBA members collaborate to bring a solution to a client, then we are fulfilling our mandate and "walking the talk".

2009 was the credit insurance industry's annus horribilis (if the queen can have one so can we) with credit availability drying up. As the economy starts to expand in 2010, there are signs that insurers' appetites are improving, but buyer capacity continues to be the challenge in industries where prices are volatile and beginning to rapidly increase.

ICBA brokers can help to insure you against the next political risk crisis

2010-01-21T19:10:44Z

By Ron Doyle

Kevin Carmichael in his article on monetary policy in the Globe and Mail’s Report on Business of Friday, January 15, 2010, refers to the high levels of worldwide government debt, resulting from huge stimulus packages, as the biggest threat to global recovery. The article refers to the World Economic Forum Global Risk Report 2010, in which the London based group raises concerns over the high degree of interconnectedness between all areas of risk and warns that unless we address these risks they may cause the next crisis.

Clients benefit from Takaful trade credit and political risk insurance

2010-01-11T17:55:18Z

Excerpt from ICBA Advantage Issue 5 – Winter 2009/10

Takaful (ta-KAH-ful) or Shariah-compliant insurers offer coverage that can significantly complement "conventional" or Western-based insurers’ footprints in Africa, the Middle East and the Asia Pacific region.

In recent years, professionals in global business and trade finance have been hearing about Islamic Finance and Shariah-Compliant business models. For many, these concepts are confusing and somewhat intimidating.

Takaful comes from an Arabic word meaning "guaranteeing each other." It is based on the concept of mutual help or protection. The primary difference between Takaful and conventional insurance in the West is how risks are treated.

Coface's Corine Troncy says transparency and trust between Coface, ICBA and clients are priorities

2009-12-28T12:00:00Z

Excerpt from ICBA Advantage Issue 5 – Winter 2009/10Corine Troncy

Coface, based in Paris, France, with 130,000 clients worldwide and a direct presence in 67 countries, recently introduced its “New Deal” giving clients more flexibility in the managment of portfolios and increasing dialogue among risk underwriters and clients. Improved transparency allows Coface to show clients how the company monitors accounts, identifies portfolio quality, and helps Coface be extra agressive in underwriting clients’ limits. Corine Troncy is Global Sales & Business Development Director, Coface Holding.

Question: Since the credit crisis began in 2007, Coface has maintained excellent guarantees, totalling €364 billion mid-way through 2009. Coface also reports improvements to its risk profile. How do these measures benefit customers?

The world remains mired in debt: Your New Year’s resolutions should include playing close attention to credit risks in your industry

2009-12-24T15:27:00Z

By Ron Doyle

Hallelujah, the recession in Canada is over – the GDP grew by 0.1%! However the real question: Is the risk of bad debt losses increasing or decreasing on a global basis?

The number of banks in the USA that have failed in 2009 has reached 140. This is a symptom of weakness in the American banking system. Yet, what is happening with banks in other countries around the world, such as in Mexico, Russia, and the United Kingdom? How many of these banks have exposures to sovereign debt in countries like Dubai or Greece, and how are governments going to finance the expanding deficits?

It appears that because of the deficits, some countries, like the United Kingdom, and even the USA, may find their debt ratings reduced in future, which will increase the cost of borrowing and make it more difficult to find buyers for their ballooning debt.

There is an immense amount of debt held today by individuals, companies and governments, all which will have to be refinanced in coming years.

Julius Caesar says, “Dig in with Discretionary Credit Limits and a strong team, be rewarded with increased control and decreased cost relative to coverage decisions”

2009-12-22T16:42:26Z

By Rob Downey Vercingetorix surrenders to Caesar by Alphonse Marie de Neuville (31 May 1835 – 18 May 1885)

This is the second time in 2009 I have risked the use of a military tale to support my view about the best use of credit insurance (CI). The Discretionary Credit Limit (DCL) is the topic for this post, so it is perhaps appropriate for me to take a few “discretionary” risks in framing my recommendation, but first the historic context:

For six months in 53-52 B.C., Julius Caesar and twelve legions, numbering 60,000 Roman regulars, pursued Vercingetorix, principal leader of the Gauls, and his 80,000 warriors through what today is Northern France. By summer, the Romans were able to trap and besiege the Gauls on a plateau near modern-day Alise-Sainte-Reine, fifteen miles NW of Dijon. To secure his elusive foe, Caesar had his legionnaires circumvallate the entire Alesian plateau with an 11-mile wall comprised of a twelve-foot-high earthen palisade, behind a double row of deep ditches. The encircling work took a month. The trapped Gallic leader sent riders out for reinforcement. Caesar let the couriers “escape”, and allied tribes marched to the relief of Alesia, 250,000 strong.

While waiting, Caesar had his army dig a second “outer” wall, or contravallation, 13 miles long. When it was finished, Caesar was intentionally and irremediably “trapped” in a dug-earth doughnut, expecting to be assaulted all around by the largest army ever to attack Roman troops. Incredibly, history records that the legions won the four-day battle which ensued. Casualties were thirty to one in Rome’s favor; Vercingetorix was captured; 100,000 other captives were dispersed.

The practical application for better credit risk management: Outnumbered five-to-one on his opponent’s home field, Caesar trusted in the professionalism and competence of his team and put his Legions in a position calculated to give them maximum opportunity to assert their advantages, i.e., superior ability at close-in fighting, in ranks enhanced by elevated and protected defensive positions. He moved toward his problems, dug into the risk he faced, and thereby avoided being either destroyed piecemeal over months of guerrilla warfare, or surrounded and overrun on the plains of Gaul.

What you can’t see can hurt you: Keep the blood supply flowing to your business with appropriate credit insurance

2009-12-21T15:20:16Z

By Ron Doyle

In 2008, major international credit insurers paid out or reserved over 4 billion euros in claims. In Canada, Canadian credit insurers, including Export Development Canada, paid $183 million in claims and so far this year, over $10 million in claims have been paid to Millennium clients alone.

These numbers are staggering and definitely show that credit insurers do pay claims, but more notable is that the shipments that resulted in these claims were made prior to 2008, before the effects of the present-day recession became evident. The beneficiaries of these claim payments bought credit insurance, as a prudent risk management decision, when risks were low and insurance capacity was available at a very reasonable price.

Nine credit insurance tips as relationships change in 2010 with underwriters, suppliers, buyers, lenders and peers

2009-12-07T16:03:57Z

By Rob DowneyThe sculpture "Apollo and Daphne" by Bernini in the Galleria Borghese (from a file from the Wikimedia Commons)

Long ago, in the days before the crisis (B.C.)… Apollo, god of light, poetry, and eternal youth, the son of Zeus & Leto, was betrothed to Daphne – daughter of the River god, Peneus – and she was a lovely lithesome athlete. Fresh from defeating Python with his bare hands, brash Apollo made fun of chubby be-winged Cupid and his small bow. Impulsive Cupid shot a golden Arrow of Love into Apollo’s heart, but a lead Arrow of Revulsion into the heart of Apollo’s fiancee Daphne.

Both utterly besotted and frustrated, Apollo chased the fleeing, frightened Daphne through the woods of Olympia for a year. Too tired to run anymore, she asked her father’s help to escape Apollo. Peneus cleverly turned his daughter into a laurel oak tree – source of royal staves and Olympic leaf crowns – so she could be forever near him on the banks of the rivers he ruled.