Credit Insurance_Bank Presentation

Credit Insurance Overview EULER HERMES ACI

Janelle FoyEuler Hermes ACI(770) 673-5548 Office(404) 642-9553 [email protected]

Inside page00/00/0000

2

Euler Hermes ACI

• Largest Credit Insurance provider in the world, oldest in North America.• 114 years of experience• International network of Analysts, Underwriters and Risk Associates• 57,000 Policyholders worldwide• Subsidiary of Allianz Group

• Global Presence• 6 Continents• 50 Countries• Serving over 200 Markets

• Account Monitoring• 43,000,000 companies monitored in our risk database• 25,000 credit limits processed daily• 190,000 debt collections handled in 2008

• Rated Standard & Poor AA-, AM Best A+ (superior)• Explicit “Limits-Underwriter” Mono-Line Carrier


3

Business Bankruptcy Statistics

19,69528,322

43,546

63,000 60,700

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2006 2007 2008 Predicted2009

Predicted2010

Business Bankruptcy Statistics

Sources: Administrative Office of the US Courts, Euler Hermes forecasts

Economists predict a 45% growth in 2009 business bankruptcies over the previous year. This may prove to be conservative, the first half of 2009 comparisons show a

64% increase over the first half of 2008.

* Note – Actual bankruptcies in the first half of 2009 = 58,000


4

Top 10 largest U.S. Bankruptcies

Rank Company Dated Filed Total Assets

1 Lehman Brothers Holdings 9/15/2008 $691 Billion

2 Washington Mutual 9/26/2008 $327.9 Billion

3 WorldCom 7/21/2002 $103.9 Billion

4 General Motors 6/1/2009 $91 Billion

5 CIT 11/1/2009 $71Billion

6 Enron 12/02/2001 $65.5 Billion

7 Conseco 12/17/2002 $61 Billion

8 Chrysler 4/30/2009 $39 Billion

9 Thornburg Mortgage 5/01/2009 $36.5 Billion

10 Pacific Gas & Electric (PG&E) 4/06/2001 $36 Billion

source: cnnmoney.com

Six of the ten largest bankruptcies in our

country’s history occurred in 2008-2009.


5

Bankruptcy Data

• Bankruptcies are inevitable …regardless of business size

• Failures come from increasingly unpredictable sources

• Large bankruptcies can cause a “domino effect” with suppliers


6

How does Credit Insurance protect your customer?


7

Protection against unexpected Bad Debt Loss

• Insolvency• Chapter 7, 11,13, bulk sale, receivership, general meeting of

creditors, etc.• Claim paid when bankruptcy court recognizes the debt.

• Protracted Default – i.e. Slow Pay• Claims must be filed within 90 days from invoice due date or 180

days from ship date, whichever is longer.• We have 60 days to try and collect, if we collect debt then you are

assessed a 15% collection fee however, deductible or coinsurance do not apply.

• If not collected, on the 61st day, you are paid the claim…no worries!

Trade Credit Insurance


8

Why Trade Credit Insurance?

• Catastrophic Risk Protection• Prevents disrupting losses to one of the company’s largest, unprotected assets• Reduction of Risk of Key Account concentration levels• Caps Exposure to Bad Debt Loss

• General Loss Prevention - Information Access and Credit Management• Support for your Credit Risk Evaluation through third party evaluations of customers, prospects,

industries and countries• Provides a structure and discipline for credit decision making• Gain leverage over problem accounts by using underwriter’s clout and resources

• Sales Expansion• Expand Sales into Riskier or New Markets • Grow with Existing Accounts• Enhance a Customer Relationship

• Bank Financing• Enhance Lending Relationship...

• High Concentration with Key Accounts• ‘Cross-Aging Language’ on A/R• Borrowing against Export Receivables• More capital at reduced rates, taking full advantage of A/R

• Reduction in Bad Debt Reserves • Frees up Working Capital • Converts non-tax deductible provisions into a fully tax deductible insurance premium


9

Export Coverage

Export Credit Insurance can provide your organization with increased sales, cost savings and protection from unexpected losses

• Eliminates… Need for Letters of Credit• Credit Insurance reduces the charge compared to LC• Covers shipments for the year • Open terms allows your buyer to keep their working capital line of credit available for

other uses

• Borrow… Export Receivables are no longer non-performing assets, but may become recognized collateral that can open up opportunities for better financing

• Competitive Edge … Offering open terms compared to your competition may be the difference

• Political Risk… Export protection against• Inability to obtain hard currency• Changes in Import/Export regulations• Contract frustration due to Act of War• Foreign government non-payment


10

The Only Major Asset Left Uninsured

• What assets are insurable and insured?• Odds as to where you will experience a loss is with the A/R.

• Where does your A/R fall on your Balance Sheet

• Typically represents from 40% to 70% of a company’s assets

• Most vulnerable to unexpected losses• Likely to be affected by business cycles • Provides cash flow for the business• Only under-leveraged asset with financial lender• Few companies can effectively compete without

extending credit to their buyers

• What amount of loss would seriously impact your company’s financial stability or annual profit? How many accounts have credit extended over that amount?


11Appendix

The table shows the amount of sales required to cover a write off debt. i.e., a $50,000 debt @4%Profit Margin means you have to gain $1,250,000 to BREAK EVEN.

Bad Debt AmountProfit Margin $25,000 $50,000 $100,000 $250,000 $500,000 $1,000,000

2% $1,250,000 $2,500,000 $5,000,000 $12,500,000 $25,000,000 $50,000,0004% $625,000 $1,250,000 $2,500,000 $6,250,000 $12,500,000 $25,000,0006% $416,667 $833,333 $1,666,667 $4,166,667 $8,333,333 $16,666,6678% $312,500 $625,000 $1,250,000 $3,125,000 $6,250,000 $12,500,000

10% $250,000 $500,000 $1,000,000 $2,500,000 $5,000,000 $10,000,00015% $166,667 $333,333 $666,667 $1,666,667 $3,333,333 $6,666,667

Effect of Bad Debt Loss


12

Customized Policy

• Structure• Coverage – entire portfolio or logical segmentation• Named Accounts• EZ Cover• Discretionary Credit Limit (DCL)

• Premium – 1 – 2 years• Industry, Buyers, Annual Sales• Rate is quoted as percentage of Annual Sales

• Risk Sharing• Coinsurance – 90% Idemnity• Aggregate first loss (deductible)• Non-Qualifying loss

• Past Due Reporting• 60 days past due – over $10,000

• EOLIS On-Line Database• Proprietary financial information on 48+ million companies• Turnaround times:

• 1 day domestic (95%)• 4-7 days export (95%)

• Policy is Dynamic – make it work for you!


13

How does Credit Insurance enhance your lending?


14

Borrowing Enhancements

• Advance Rates• Puts a “Hard Cap” on potential bad debt losses.• Reduces overall inherit risk in pledged receivables• May allow to meet client’s need for additional working capital

• Eligibility• Reduce risks of “concentration” issues & any “slow pay” issues• Offer competitively price funding due to reduced risk of A/R

• Underwriting Support• Euler Hermes ACI underwriting assumes responsibility to review,

approve and monitor your client’s insured account base• Explicit “Limits-Underwriter”

• No credit due-diligence except for severe delinquent notification

• Including Export A/R in borrowing base

• Policy Assignment• Policy would be assigned to your Bank, giving you the same rights

as the client under the terms of the policy.


15

Case Studies

• Insured receivables facilitates higher advance rates – Increased Borrowing Power• Borrower procures additional working capital – Elimination of Concentration Issues• Provides creative solutions for clients – Eliminates

‘Cross Aging Language’• Ensures Borrower does not default – Reduce Credit

Loss Impact on Cash Flow

Verified Bank & Client “Wins”

Appendix


16

Increased Borrowing Power

• Purolite USA - $9 million in foreign receivables• Aquarium Pharmaceuticals - $2 million in foreign receivables• Bentley Systems - $11 million in foreign receivables• Mohawk Electric - $2.5 million in foreign receivables

Case Study:

Appendix


17

Elimination of Concentration Clauses

• BSTC Group - $2 million in total a/r of which $1 million is to one customer. Fleet Bank has a 25% “concentration clause” for any one debtor.• 25% of $2MM = $500,000 maximum for any one debtor. $500,000 excluded from borrowing base• $500,000 x 80% = $400,000 additional liquidity

Case Study:

Appendix


18

Eliminates ‘Cross Aging Language’

• Rol Paper, Inc. - $1,200,000 in total A/R. • Craftsman Press maintains a balance of $200,000 of which $60,000 is 60 days past due. Mercantile Capital has a “10 percent rule”, the practice of making all of the A/R from Craftsman Press ineligible to be included in the borrowing base.

• $60,000 is 30% of $200,000 exceeding the 10% rule.• This $200,000 would be excluded from the borrowing base without the credit insurance

Case Study:

Appendix


19

Credit Loss Impact on Cash Flow

• ICS Corp – 2 write offs totaling approximately $500,000. Meaningful impact on cash flow. Required them to obtain an overline with their bank.• P&M Color Workshop – $2.1 receivable to Kmart. Company received $800K loss payment. Proceeds went directly to bank to pay down revolver.

Case Study:

Appendix

We thank you for the opportunity to present our company and our services.

We look forward to becoming a trusted and important resource to your company.

For additional information, please contact:

Janelle FoyEuler Hermes ACIOffice: (770) 673-5548Cell: (404) [email protected]

Credit Insurance_Bank Presentation

Economy & Finance

Transcript of Credit Insurance_Bank Presentation