“EMERGENCE OF TRADE CREDIT INSURANCE IN THE MIDDLE EAST MARKET

– AVAILABILITY & PRACTICE”

Presented By:

AFTAB HASAN - CEO

‘Arya Insurance Brokerage CO. (LLC)’Dubai - U.A.E.

PRESENTATION OUTLINE

Concept of Trade Credit Insurance

Origin of Trade Credit Insurance

Why to have Trade Credit Insurance?

Existing Global Underwriting Markets – Key Players

Availability & Practice by Insurers

Policy Structures, Coverages & Capacity

Current Market Prevailing Conditions

Regional Country Coverages

The Role of Broker / Advisor

Summary

Q & A

CONCEPT OF TRADE CREDIT INSURANCE

What is Risk ?

CONCEPT OF TRADE CREDIT INSURANCE

Trade credit insurance, business credit insurance, export credit insurance, or credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.

Trade Credit Insurance can include a component of political risk insurance which is offered by the same insurers to insure the risk of nonpayment by foreign buyers due to currency issues, political unrest, expropriation etc.

ORIGIN OF TRADE CREDIT INSURANCE

History:

Trade Credit Insurance was born at the end of nineteenth century but it was mostly developed in Western Europe between the First and Second World Wars. Several companies were founded in many countries; some of them also managed the political risks of export on behalf of their own state.

ORIGIN OF TRADE CREDIT INSURANCE

History: (Cont.……)

It is documented that Issuance of first Credit Insurance Policy was done in 1850 by a Government backed British Commercial Insurance Company which was the first Specialist Credit Insurer.

Trade Indemnity a privately owned insurance company formed in 1918 was the First Private Insurer to issue Credit Insurance Policy.

After the end of First World War UK established in 1919 a separate Export Credit Agency reporting to the Secretary of State for Trade and Industry called “Export Credit Guarantee Department” (ECGD).

ORIGIN OF TRADE CREDIT INSURANCE

History: (Cont.……)

In 1991 following the privatization of the short-term side of the UK's Export Credit Guarantee Department (ECGD), a concentration of the Trade Credit Insurance market took place and three groups namely Euler Hermes, Atradius & Coface now account for over 80% of the global credit insurance market emerged rapidly. These main players initially focused on Western Europe but rapidly expanded towards Eastern Europe, Asia and America.

WHY TO HAVE TRADE CREDIT INSURANCE?

Protection Against Bad Debt Comfort To Financers Balance Sheet Protection Expansion In New Market Assist Debt Collection Information & Due Diligence On

Client Proper Corporate Governance Relaxation On Available Credit

Conditions

EXISTING GLOBAL UNDERWRITING MARKETS – KEY PLAYERS

Euler Hermes came into existence with the merger of the two credit insurance companies of the Allianz Group. Euler Hermes is the world's number one credit insurance provider.

•Presence in 50 countries

•Part of Allianz Group

•AA-rating by Standard & Poor's (Feb. 2014)

•34% Global Market Share as at Dec 2013.

EXISTING GLOBAL UNDERWRITING MARKETS – KEY PLAYERS

Atradius occurred with the merger between NCM and Gerling Kreditversicherung. Later renamed Atradius after it was demerged from the Gerling insurance group.

•Presence in 50 countries

•Ownership: Grupo Compañía Espanõla de Crédito y Caución, S.L. (Grupo CyC) 64.23% & 34.95% Grupo Catalana Occidente S.A. (GCO)

•A rating by Standard & Poor's, A.M. Best is ‘A (excellent) outlook stable’ and ‘A3 outlook stable’ by Moody’s

•22% Global Market Share as at Dec 2013.

EXISTING GLOBAL UNDERWRITING MARKETS – KEY PLAYERS

Coface was formerly a French government sponsored institution established in 1946; this company is now part of the a wholly-owned subsidiary of Natixis, the financing, asset management and financial services arm of the BPCE Group, France’s second largest banking group.

• Presence in 67 countries

• As of August 7th 2014, the shareholding is as follows: Public: 58.50%; Natixis: 41.24%; Employees: 0.26%.

• AA-rating from S & P

•24% Global Market Share as at Dec 2013.

Trade credit insurance stimulates global trade specially after global crisis. Here is a listing of some of other insurance companies offering Trade Credit Insurance.

EXISTING GLOBAL UNDERWRITING MARKETS – SOME OTHER PLAYERS

AVAILABILITY & PRACTICE BY INSURERS

Trade credit insurance can help a company protect accounts receivable from losses caused by the insolvency, protracted default, or political events.

Most of the companies offer Coverage based on following structure according to clients specific requirements, including: Whole Turnover: A single contract to insure all

of your firm’s receivables; Key Accounts: A contract designed to insure

only your largest customers or another defined band of customers; and

Single Debtor: A policy designed to insure exposures related to one customer.

AVAILABILITY & PRACTICE BY INSURERS

Each of these contracts can be designed for domestic sales, export sales, or a combination and can be defined regionally or globally.

Trade credit insurance is applicable for companies that: conduct business on open, unsecured credit

terms or have significant bad debt reserves; have heavy export activity or international

receivables; want their enterprise risk management

philosophy to be applied to treasury and financial management;

have accounts receivable concentrations to only a few accounts;

seek asset-based lending arrangements with banks; and

may not collect sufficient credit information on their own customers and value a credit partner to access credit risk.

Whole turnover

Domestic

Export

Commercial

Political

Trade Specific

Special Risks

Anything else

Supplier default

Captives

Specific Account

Single Customer

Selection of Customers

Bonds

Niche Market

Specialist Underwriters

POLICY STRUCTURES, COVERAGES & CAPACITY

DISTINCTIVE POLICY STRUCTURE

Multi buyer/obligor or single and specific risk

First loss/risk share/co-insurance Endorsed buyers by credit limit Tenor flexibility (i.e. terms) Formula maximum liabilities, although

negotiable Comprehensive cover (TCI and PRI) in

some instances Currency flexibility within most policies Point of Issue?

POLITICAL RISKS (PRI)

Contract Frustration

Confiscation Expropriation Nationalization Deprivation Strikes

Civil Commotion Rebellion Terrorism War Political Violence

What is covered ?

CURRENT MARKET PREVAILING CONDITIONS

Underwriters are providing flexible and innovative products

Sober outlook of Reinsurance Capacity Wide choice of underwriters available Competitive pricing offered with key players Supportive risk underwriting condition Expansive international/global outlook Profit margins continue to squeezed Market is cyclical in nature and reactive Increased divergence between those underwriters who

are looking to build or expand their accounts and those who may become increasingly defensive or selective

This means a market place where it will be essential to employ a SOUND BROKER!

REGIONAL COUNTRY COVERAGES UNDERWRITERS DEAL FREQUENTLY

UAESaudi ArabiaKuwaitQatarOmanBahrainEgyptLebanonYemenJordanTurkeyAlgeria

USACanadaUnited KingdomGermanyFranceSpainSwitzerlandIndiaChinaPakistanBangladeshSrilanka

Iran – Iraq – Sudan – Libya – Afghanistan etc…..

Principal trade credit insurers are off risk for these markets and have very less appetite or reservations by most underwriters due to: Restricted PRI interest/availability from

Lloyds of London

Although in certain cases they cover with: Certain difficult exceptions Obligor specific underwriting conditions

C0UNTRIES WHICH ARE UNSTABLE OR ON SANCTION ARE OFF RISK

Advising client with experts tailor solutions to the unique needs of each company or organization

Negotiate with Insurers / Underwriters on behalf of client

Assist in understanding Policy Structure to client Negotiating Competitive Price – new business or

renewals Assisting Client in settlement of their legitimate

Claims Negotiating Credit limits to be approved per

buyer Manage smooth relationship between client and

underwriters Training, Policy Compliance & Reviews

THE ROLE OF BROKER/ADVISORTO CLIENT

Formed in UAE in 1988 replacing the name of Secure Insurance Services

ISO 9001 Certified Company by TUV Germany

Full-fledged Trade Credit Insurance Division with proficient team of experts with vast industry knowledge

Strong associations with major key players of the Trade Credit Insurance Market

Bespoke client service – team approach Multi-national client portfolio Negotiation on your behalf to provide a

cost-effective program

ARYA INSURANCE BROKERAGE COMPANY (AIBC)PROFILE

Plenty of options open for buyers, but beware of the long-term implications.

Strong political risk (PRI) appetite for risks within region, written for the most part from Underwriters in London

Major banks involved in trade finance which mandates compulsory Trade Credit Insurance to lenders already have substantial presence in the region.

Intelligent ‘INSURANCE BROKER’ can help identify and quantify risks and bring them under control. They can create and implement customized solutions employing the most effective blend of risk mitigation, risk transfer, and advanced risk financing.

CONCLUSION

Considering all above explanation I do not anticipate a drastic increase in rates particularly for 2015 rather will expect each market to be rated separately, taking into account their exposure and experiences across industry.

CONCLUSION

QUESTIONS?