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Political Risk Event of the Month: international business and India

Administrator — Mon, 30 Apr 2012 20:52:58 +0000

Submitted in part by ICBA Asia, Brazil, India and the USA via the IRC Read & Delete Monthly

In March 2012 the Indian legislature announced changes to its tax regulations that will have a chilling effect on foreign investment. The move overrides recent decisions from the Indian Supreme Court that were hailed as victories for multinational corporations. Compounding the challenge for businesses, the new legislation may turn in to a showdown between India’s legislative and judicial bodies, further muddying the waters in a country infamous for bureaucratic red tape.

In April 2012, several trade groups including U.S.-based Business Roundtable, the Confederation of British Industry and the Japan Foreign Trade Council, representing some 250,000 businesses, sent a letter to Prime Minister Manmohan Singh in response, warning that a number of their members are reconsidering expansion plans into India and that "India will lose significant ground as a destination for international investment if it fails to align itself with policy and practice around the world." The changes, and their retroactive application, could result in a significant flight of investment from an economy that is already struggling with rising inflation, a weakening currency and growing skepticism among foreign investors.

(The Political Risk Event of the Month blog post is 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.)

Using “Utmost Good Faith” to advantage in credit insurance policies

Administrator — Thu, 26 Apr 2012 19:50:51 +0000

By Ron Doyle

When I started my career in credit insurance over 40 years ago, it was explained to me that Credit Insurance Policies were “contracts of utmost good faith”. When I asked for an explanation, I was told insurance policies are more than mere commercial contracts, but rather they are contracts under which each party expects the other to act in good faith. Insurance policies can be technical and they may have “fine print”, but if they are truly “contracts of utmost good faith”, each party must act to fulfill obligations to the best of its ability.

The basic obligations of the insured are:

To provide complete and correct information to the insurer, including all facts relating to any risk known to the insured
To provide the insurer with any new information of which it becomes aware at any time that may adversely affect the risk
If a potential loss develops, to take all necessary steps to avoid or minimize the loss
To pay the premium on those sales that the insured has agreed to offer for insurance
To not ship to a buyer that the insured knows to be in financial difficulty
To assist in the recovery of any claims paid by the insurer
To act and conduct business as if insurance was not in place, that is, the insured mustn’t take unusual risks just because it has insurance

The Top 10 CFO Challenges in 2012

Administrator — Thu, 26 Apr 2012 17:58:48 +0000

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

I recently attended and spoke at the New Zealand CFO Summit in Auckland, New Zealand. In the prelude to the Summit, a survey was taken to rank the top challenges for CFOs in New Zealand in the up-coming year. Number two on that list was "managing risk."

It was stated, "risk is neither a compliance chore nor is it just about managing financial operational risk. It requires CFOs to manage the effects of uncertainty throughout business operations."

In a survey of 180 CFOs, the question was asked, "How are CFOs managing risk in Asia?"

Underlying Danger: avalanches of political risk can surprise even the most secure foreign investment contracts

Administrator — Thu, 29 Mar 2012 14:45:08 +0000

By Ron Doyle

I spent two weeks in March 2012 skiing in the Canadian Rocky Mountains, during which time it snowed nearly every day. The new fresh snow was mounded up on every slope. The sights were amazing, as every surface and tree was coated in white. It was hard to believe that anything so beautiful could be so dangerous. The warnings of high avalanche danger were quickly proven, when several skiers and snowmobilers were caught in avalanches and killed. Apparently, the new spring snow was heavier and had more moisture than the existing snow cover, thus creating a very unstable situation.

When I returned to the office, one colleague reported that during the recent International Credit Insurance and Surety Association meetings, members indicated that more companies were buying Single Buyer policies largely to protect their larger exposures from political risks. Another colleague advised that our clients had experienced non-payment situations on sales covered under Irrevocable Letters of Credit.

The danger of avalanches in the mountains is a very good analogy for the political risk dangers underlying even the most secure of export sales or foreign investment contracts.

Political Risk Event of the Month: Brazil's efforts at grand reforms

Administrator — Wed, 28 Mar 2012 14:46:11 +0000

Submitted in part by ICBA Asia, Brazil, India and the USA via the IRC Read & Delete Monthly

Dilma Rousseff, President of Brazil, was elected after campaign promises to eradicate corruption. She assumed office January 1, 2011. So far, she has sacked seven ministers for accepting bribes or kickbacks, including the Head of the Mint, in early 2012 (as reported in beyond brics, FT.com). President Rousseff is sending a message that the status quo must change. But is she going far enough?

Critics of the President have two complaints: that Rousseff reacts to scandals on the newsstand but is not a proactive agent of systematic reform, and that many of the disgraced ministers were close to her mentor and predecessor, Lula da Silva. Her ruling coalition is large and fragmented, which makes building momentum behind grand reforms difficult. However, the costs of corruption to the Brazilian economy are real. President Rousseff must follow through on her promise to end corruption, if she is to deliver on her second pledge to grow the economy and add jobs. As one of her first steps - as described in part in Business Day - Rousseff aims to reduce business taxes.

(The Political Risk Event of the Month blog post is 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.)

The economy's Mortgaged Future and the insurance solutions available

Administrator — Tue, 28 Feb 2012 21:19:54 +0000

By Ron Doyle

Most players in the western economy have mortgaged the future based on the premise that debt can be outrun by continued growth. This assumption has resulted in countries, states, companies and individuals all suffering from unsustainable debt loads.

The problem: low interest rates have encouraged individuals to make accelerated purchasing decisions. Coupled with low interest rates, individuals are encouraged at every opportunity to take on more debt. Some everyday examples are:

Longer mortgages with lower down payments

Hard goods or electronic purchases on credit with no payments for up to 18 months

Credit cards, which can be used for everything from parking meters to buying groceries and beer, offering points

Easy to obtain lines of credit

Extended auto finance plans with low interest rates

Exacerbating the debt problem: many of the items purchased have very short periods before they are obsolete and must be replaced by more current technology.

Former Country Managing Director at Coface Joins ICBA Sweden

Administrator — Wed, 01 Feb 2012 17:31:38 +0000

By Curt Hässler

As of January 1, 2012, the former Managing Director of Coface for the Nordic countries, Mikael Szabo, has joined ICBA Sweden, known also as Söderberg & Partners, in Stockholm, Sweden. ICBA is the largest broker of financial services in Scandinavia. Szabo had been with Coface since 2001, and had held the positions of Country and General Manager for Hungary, Slovakia, and Sweden as well as Managing Director of Coface Norden Services A/S in Denmark.

After such a long time working at a global insurer, I began looking for another way to expand my skills and knowledge, and what is more logical than to join a brokerage that deals with all aspects and suppliers within this exciting business? Having made this decision, ICBA Sweden was the natural step to take: On one hand Söderberg dominates the Swedish financial advisory market and on the other hand ICBA is the most expansive and exciting network of trade credit insurance and political risk specialists in the industry.

In my Coface years I had the opportunity to see how effectively ICBA works with its clients and how well-organised the ICBA group is. It is with great joy that I take on this new challenge! - Mikael Szabo, after one month on board as Partner at ICBA Sweden.

(Curt Hässler is Head of Credit Insurance with ICBA Sweden, Söderberg & Partners, in Stockholm)

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

Administrator — Fri, 06 Jan 2012 19:57:46 +0000

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.

Banks Make Quick Decisions When Better Credit Quality is the Goal

Administrator — Wed, 07 Dec 2011 20:17:12 +0000

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.

ICBA Australia and New Zealand now has official licence in Singapore

Administrator — Mon, 05 Dec 2011 15:25:56 +0000

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)