Stress Testing Your Company’s Balance Sheet

By Ron Doyle

In recent months European banks have been subjected to stress testing. The purpose of the testing is to determine if a bank’s capital can withstand a loss from a catastrophic event that is improbable, but possible, and will impair assets. It is surprising to realize that a relatively small impairment of assets can wipe out the capital of even banks that appear to be very solid.

What happens when a company applies a similar stress test to its balance sheet? In assessing the balance sheet of a company some areas to consider are:

• What percentage of total assets is represented by Accounts Receivable?
• What are the largest exposures to trade credit risk?
• How strong are the accounts with the large exposures?
• Could the company absorb the loss of one of these accounts? (remember: improbable, but possible)
• In Non-Current Assets section, what would be the impact if assets, such as mobile equipment, fixed investments in plant and equipment and even goodwill, had to be shown as impaired due to a political event outside of the control of the company?

Click to read more ...

Getting the credit insurance you want and need: Reliable tactics for multi-buyer receivable policies

By Rob Downey

In previous blogs posts on the topic of Trade Credit Insurance (TCI) policy administration, we heard from a West Virginia hitchhiker on the necessity of changing tactics, and from the Roman gods Apollo and Daphne on the benefits of changing thinking to suit the demands of the day.  Today add Mick Jagger and the Rolling Stones to the list of those who took up other careers, but might have been great Treasurers, Chief Financial Officers or Credit Managers by virtue of their abilities to retain the essential flexibility of mind and openness to tactical change necessary to use trade credit insurance products wisely.

“You can't always get what you want… but if you try sometimes, you just might find, you get what you need."

With the dawning of 2011, I address all insureds holding Multi-Buyer (MB) receivables policies: If you are concerned about gaps in your MB coverage or restrictions that keep certain credits outside your insured portfolio, think about your situation anew.

Click to read more ...

Crisis? What Crisis? Cash flow underwriting is a mug’s game

By Mark AttleyCover art copyright is believed to belong to A&M Records or graphic artists, Fabio Nicoli, Paul Wakefield, and Dick Ward.

I was bemoaning the return to soft credit insurance pricing the other day with some colleagues. The return to soft pricing follows very closely on the heels of supposedly the worst credit environment in living memory. The financial crisis resulted in ballooning claims ratios, severe contraction of credit and a justified increase in pricing. It should be noted that even with increases in pricing, premium rate costs were still well below late 1990 and early 2000 levels. However, those price hikes did stabilize the market and insurance company shareholders and re-insurers were appeased as underwriting results improved dramatically in late 2009.

Fast-forward to 2010 and it's playing like Supertramp's famous 1975 progressive rock album, Crisis? What Crisis?

Click to read more ...

“It is legal to be stupid, but it’s not mandatory.” An abrupt, brutal note of caution to those who would relax trade credit insurance vigilance, as the economic slowdown ends

By Rob DowneyAlfred E. Neuman (named by Harvey Kurtzman) of Mad Magazine

I urged readers in prior blog posts to conceive of both credit insurance (CI) and political risk insurance (PRI) as diverse tactical tools for a busy world AND as strategic “glocal” solutions to be structured globally and implemented locally.  

My previous advice was directed to an engaged and practical audience. But recently, I tried to calm a client’s fears by offering bland assurances that competitive pressure would keep underwriting practices in our industry flexible and reasonable for years to come. For that, I earned from Brandon Baker, a partner at ICBA in the U.S., the rebuke cited in this blog post’s title  His intent was to challenge my easy certainty that sobriety would prevail in our industry, simply as a consequence of the economic slowdown. “Thanks,” I might have replied to his humorous startling retort, “I needed that.”

Click to read more ...

Global Economic Trade Issues Affect Diverse and Disparate Companies, Final of Three Parts: VACCINES

By Ron Doyle

Vaccines provide immunity against disease. There are “vaccines” available that fight the financial and political threats to your company’s health.

In this final blog post of the series (read part one, CONTAGION, here and part two, INFECTION, here), I start with esoteric threats and move to the more mundane problems of everyday credit management. I also introduce protective measures available to a company in peril.

1. As credit and foreign aid are reduced, and civil war, rebellion and civil commotion become the norm in many countries, these events may make it impossible for a foreign investor to access an investment. Political risk insurance can cover such risks at a reasonable cost, and coverage can be put in place to protect an investment for a number of years.

2. Companies working on contracts overseas often bring in equipment to carry out the contract. The equipment may be impossible to repatriate at the end of the contract, particularly, if the contract is cancelled or falls into default.

Click to read more ...