There is a view by many experts that credit insurance, also referred to as credit and political risk insurance (CPRI) or non-payment insurance, underpins global trade.
Banks use credit insurance for risk mitigation, capital relief, or as an alternative distribution solution.
To learn more about the current credit insurance landscape and insurance provider Swiss Re’s expansion into the North American market, Trade Finance Global (TFG) sat down with Basil Louvaris, Trade Finance North America Geographic Lead at Swiss Re Corporate Solutions, the primary insurance arm of Swiss Re.
Credit insurance at financial institutions
According to Louvaris, there are multiple reasons why financial institutions purchase credit insurance, most notably:
- Capital relief: helping financial institutions to meet their regulatory and capital requirements.
- Managing internal risk limits: including both country and obligor limits.
- An alternative distribution solution: often an attractive solution for banks since insurers are mostly silent risk solution providers and can be an alternative to distributing to competitor banks.
Swiss Re’s expansion into the North America trade finance market
Swiss Re Corporate Solutions recently expanded its global footprint in the trade finance arena by entering the North American market to serve brokers and clients in this market.
By placing trade finance underwriters with decision-making authority on the ground in New York City, they will provide broker partners and financial institution clients with the solutions they need from their AA- rated carrier.
Swiss Re Corporate Solutions is offering Trade Finance solutions for corporate obligors and financial institution obligors. Corporate obligor cover includes supply chain finance, payables and receivables programs and trade loans, while financial institution obligor cover includes letters of credit (LCs), bank guarantees, and trade loans.
Swiss Re Corporate Solutions expects brokers and their clients will be pleased with the capacities available on top obligors where other market players might have fully utilised their capacity for the array of trade finance structures supported, as well as the team’s deep knowledge as a risk partner.
The organisation’s trade finance practice recently expanded its product offerings to include non-trade solutions managed out of Europe for US and Canadian clients for regulatory compliance.
Swiss Re Corporate Solutions’ distribution channel in the Americas will be via specialist brokers focusing on financial institution clients. The insurer will look to expand their remit in the future to include trade credit, whereby they would be insuring corporate insureds––particularly those corporates that are clients for the wider Swiss Re Corporate Solutions franchise.
Swiss Re Corporate Solutions will offer traditional non-payment insurance policies and, where there is strong insured involvement, Limited Conditionality Trade Insurance policies. The latter, Louvaris notes, are intended to satisfy the Basel requirements for unconditionality whilst still respecting Article 69 New York state law regarding the prohibition on financial guarantee.
Basel opportunities in North America
In fact, Swiss Re Corporate Solutions is also working on Basel-compliant solutions that are key throughout Europe and Asia and hope to be able to offer fully compliant solutions for clients governed by the US Basel interpretation too.
The Swiss Re Corporate Solutions trade finance team is supporting industry advocacy in Europe and the US to enable better treatment of credit insurance under Basel which has a proven track record as an effective credit risk mitigant.
Louvaris believes this is the ‘holy grail’ for US bank insureds to have a level playing field with their European and Asian counterpart banks.
The key issues to solve are: first, the eligible guarantor requirement under ‘US Basel’ which currently requires the insurance carrier itself (not its parent) to have issued rated debt (but this is not required in other jurisdictions).
The second, that the insurer should be treated as a financial institution (instead of a corporate) for risk weights, which many believe is the intention of the Basel Accords in any event (this clarification is being requested in European advocacy as well).
Other credit opportunities in North America
The other big opportunity for the US market Louvaris mentions is to enable non-trade credit insurance policies in the US. The market believes it can be done without falling afoul of the financial guarantee prohibition, but regulatory clarity is key.
Allowing banks and other financial institutions in the US to partner with insurers on sharing risks for non-trade credit like corporate loans will make a deep impact on advancing corporate resilience.
Louvaris closed his chat with TFG reiterating their global ambition to partner for progress driving resilience and thus their tagline is apt, they look forward to working with the US market to Advance Trade Finance, together.