Asian trade credit and political risk insurers are seeing increasing demand for their products from the region’s banks, corporates and traders. GTR gathered a panel of insurance experts – both old and new to the Singaporean market – to discuss their plans to meet this surge of interest.



  • Carol Searle, partner, Ince & Co (chair)
  • Abhishek Chhajer, trade credit division, Asia Pacific, Markel International
  • Dimitri Faysse, political and special risks underwriter, Coface Singapore
  • Freddie Lim, managing director, Arthur J Gallagher (Singapore)
  • Andrew Loh, head of special products, Asia Pacific, Atradius
  • Anthony Palmer, chief executive, BPL Global
  • William Shaw, managing director, Texel Asia


Searle: Anthony, could you give a brief explanation of the products available in the speciality credit and political risk insurance (PRI) market in Singapore?

Palmer: The PRI market is wider than just pure political risk insurance; it is actually the specialist credit and political risk insurance market. At BPL we divide it into two main categories: pure political risk insurance products, and the non-payment or ‘specialty’ credit insurance products. The short-term whole turnover credit insurance activity, with an estimated premium volume of US$6bn, is three to four times the size of the PRI market. That, however, is a high-volume, relatively low-margin business. BPL prefers to focus on the specialty PRI niche.

So briefly, just looking at the pure PRI category, this subdivides into classic investment insurance, either for equity or for debt, the latter known as lenders’ form. The other pure PRI product is what we call war risks on land, mirroring the marine war product. It covers land-based assets against all forms of political violence, ranging from terrorism to war, and including confiscation. The difference between this and investment insurance is that it is written on a property form using the same basis of valuation as the fire insurance policy.

Turning to the non-payment insurance products, these are all comprehensive; in other words, payment default is covered irrespective of the causation, be it commercial, such as insolvency, or political. We subdivide it into two areas: cover for corporates, and for banks. The corporates range from commodity traders to construction companies and capital goods exporters. For banks, it covers the whole range of activities from short-term trade finance, through medium-term export finance to structured commodity finance, straightforward corporate and sovereign lending, and even project finance. Some insurers require the credit to be trade-related, but there is a growing number who do not have that restriction.


Searle: With that in mind, could you comment on which of these products are bestsellers in Asia Pacific?

Loh: In Asia we see a lot of enquiries on trade credit usually in the form of non-payment cover requests coming from a corporate or a bank. This cover can be the non-payment by the buyer in a simple trade transaction or it can be a bank wanting to cover the risk of another bank especially for the non-honouring of a letter of credit. We do get a lot of such non-payment cover requests in Asia, whether they are for export-oriented or domestic sales. In Singapore, the demand is usually on export sales covering the non-payment by the overseas buyers. For a big country, like China, most of the requests we receive are for non-payment by domestic buyers.

Chhajer: As Anthony said, of the various products, non-payment insurance is our bread-and-butter business. In that space we have seen a lot of interest in the last two years on the vendor financing type of deals, where the bank comes to us on behalf of a buyer, who is also their customer, but is actually buying receivables from the suppliers of that buyer. There is an increasing demand in that space. We operate under a large geographical umbrella of Lloyd’s, and we see a lot of it coming from Australia, Singapore, Hong Kong and Dubai, as well as India.

Palmer: Certainly for corporates, I agree with Andrew that the main requirement is one-off non-payment insurance. For banks here in Asia – and this is perhaps a difference between the Asian market and London – a lot of banks want to buy the pure PRI product, lenders’ form, as I described earlier. Not many Asian banks have moved to the position that European banks have with regard to buying comprehensive non-payment cover. European banks do it because they get capital relief, which is less of an issue for Asian banks, though one or two of the local banks are moving in that direction.

Shaw: I think that is true. Some of the local banks – and I include the Australian banks who are very active in Singapore and are basing a lot of their business here for the international play – are not yet getting the capital relief, as you said. So when they are buying insurance, it is because they are reaching credit limits on certain obligor names and covering beyond that, so naturally it is the non-payment cover they are looking to get.

There is another difference: I have found that in Asia there is much more interest in political risk insurance products for assets being acquired around the world, whether in Africa, Latin America or elsewhere, simply because foreign direct investment has changed radically, from Southeast Asia. There is a great deal more liquidity in this part of the world than we see in Europe or the US, so it is an area that is certainly growing.

Chhajer: Times are not so great. We have been living in this world of uncertainty for quite some time. On a risk-adjusted basis, I do not see premiums going up. But looking at pure play of premium volumes, I should expect 15-20% growth. Frankly speaking from Markel’s perspective, if we do not achieve around 15-20% growth it would be disappointing. Growth is a factor of one’s existing base but most underwriters would expect at least 15% growth in the Asian context.


Searle: Freddie, could you tell us something about who the likely buyers of the product in Asia Pacific are, and what the market is doing to attract new buyers?

Lim: We are in exciting times as I am seeing many new banks and corporates coming into the market for various PRI and speciality credit insurance. In terms of new banks, there are quite a number of relationship managers (RM) who worked in previous banks that have used PRI and credit insurance and bring along that knowledge to their new banks. For example, I recently had a call from an RM who moved from a Singapore bank and is now in India. He was looking for PRI cover to enhance a deal, something which his new bank in India has never done.

For the corporates, you have traders previously with the major trading houses who are now with mid-tier trading houses. Just like the RMs in the banks, these traders, with knowledge of how PRI and credit insurance can enhance their deals, are putting their knowledge to good use at their new trading houses. We have a trader who moved from Singapore to Dubai and came to us recently for various credit insurance products to insure their receivables and also to enhance their application for trade financing facilities.

The Singapore market is certainly doing a decent job attracting these new buyers as we are welcoming many new insurers and brokers who are helping to explain the benefits of PRI and credit insurance to these new buyers.


Searle: Dimitri, do you have anything to add from an insurer’s perspective?

Faysse: One of the main points for an insurer is to raise the product awareness. This is the first step for new buyers to come into the PRI market. Buyers are usually split into two categories: banks and corporates. Banks usually quickly pick up the logic of our products as they face the same issues as insurers – for example internal ceilings per country or per buyer. They are also large organisations, so we have to raise awareness within those organisations, both vertically and horizontally.

I would then split corporates in two categories: big and small. There are more and more big Asian corporates that are implementing progressive credit management rules and processes. PRI products can be one of the credit management tools. I have also faced several cases with small entities being subsidiaries from large European or US groups.

Those little subsidiaries here in the region usually do not have the knowledge of our specific products. But since they have their headquarters (HQs) in Europe or the US that are familiar with them, HQs often drive negotiations.

The other likely buyers are small corporates. First, because our products are a very good tool for them to get bigger deals compared to the actual size of their turnover. Second, we should raise product awareness, as a market, by speaking to the board of those corporates, and not only to the project managers, because those managers are often not keen to see their project profit and loss statement decreased by an insurance premium.

To conclude, there is definitely a big pool of corporates to develop. It is true that our niche market is mainly staffed with European people, with a culture focused on banks. Banks are naturally the main buyers, but coming from the French market where corporates are the main buyers, I think there is definitely room for improvement globally with corporates, both large and small.

Loh: I think that has to depend on the market, but overall it is still very much banks and big corporations as buyers. Also in some countries, even small companies are buying because of financing needs. So it can be very much finance-driven in some countries.

Faysse: I would add that it is effectively quite true that our products are attractive from a financing point of view. For medium or even large corporates, when there is no credit differentiation, contracts are won thanks to the financing offer, which can be improved through our PRI products.

Shaw: Finance definitely brings commodity traders. Traders are extremely flexible and mobile and they will always find opportunities and enhancements in the market. International Enterprise Singapore (IE) has also clearly identified that commodity traders will favour Singapore if they are well supported with finance, insurance, warehousing and tax advantages. Traders need to operate in a liquid environment, they are globally active and can do business from anywhere, as long as there is liquidity, and that is in Asia. A number of regional banks with a substantial amount of capital available and a fairly low cost of funds, have participated heavily in a significant number of revolving credit facilities (RCFs) and structured deals in recent months.

That also applies with insurance. There are now 17 underwriters in Singapore doing political and credit risk insurance when three or four years ago there were perhaps four. This is a profound difference, and I think those solutions then bring the appetite, because it educates more people in the market. More corporates are going to start doing business here, distributing their risk and raising their finance here rather than centralising it in Europe, so I think we shall see significantly more activity.

In our portfolio, we have seen a very different shift in the split between the corporates who are buying the product and the banks. A lot of banks are doing less limited-recourse business, they have less liquidity, or they are providing huge RCFs to traders, and traders are acting as banks to their suppliers and customers and using the insurance market to get an arbitrage effectively on the relatively cheap cost of their own funding.


Searle: Do you think there are increased opportunities for Asian banks?

Shaw: There are certainly increased opportunities for Asian banks in their own business. The issue for us around this table is how that translates into business and how we can support them. Dimitri was saying that education and exposure are critical issues here. It is not just the front office people, but also credit committees, compliance teams and the boards. But front office staff can see the value: it allows them to do more business, hopefully to make some sort of beneficial arbitrage between the relatively cheap cost of funds that local banks (compared to western banks) enjoy, and the insurance premium rates.

The issue is the culture within that bank, and its understanding of insurance and its ability and interest in understanding further. Many local banks here are moving forward, and some banks like DBS which has been international for a long time and is very entrenched in the commodity finance sphere, have gone a lot further down the track. A lot of banks act as regional financiers of local corporates, and it happens to be that the method of finance right now is trade finance. But a lot of it is just lending by local banks to corporates, particularly by Malaysian banks. So for them to use insurance they must first, within a management level, appreciate trade finance as a cultural type of financing, then see what they need to allow them to do more. I think that is a big step.

A lot of discussions have developed; a lot of underwriters have spent valuable time talking to local banks. A lot of brokers are certainly doing the same, and there is definitely progress. Opportunities are absolutely there for the local banks because they are in a position where their own capital evaluation is not so critical as it is for the eurozone banks and the western banks, which means that their cost of funds internally are comparatively cheaper. That means they can lend in these large committed facilities, like the big RCFs, which I mentioned, where they do not have to agent these facilities. They can come in with quite big numbers, they get fees and they get margins they would hope to get, but they do not have to have the administration.

The downside is that they do not learn collateral management or trade finance as it is. It is like a corporate lending concept, but the advantage for them with the insurance product, if they can get comfortable with it, is that it allows them to do more, and if their cost of funds is less then clearly they make a greater spread between the cost of the premium and the amount of earnings they are making. There is a significant amount to be done.

The other side is that the international syndication market is far drier than it used to be, so they can participate in deals they would never normally see. They are active in Latin America, in the CIS, and in Africa certainly. There are significant opportunities for them, and perhaps more as the eurozone banks struggle further in the months and years ahead.

Lim: William is spot-on about the opportunity for banks – both local Singaporean banks as well as Asian banks. When I first started doing PRI and credit insurance some 20 years ago, even the European banks were struggling a bit with firstly, getting good knowledge about what PRI and credit insurance can do for them and secondly, getting comfortable with the product itself. There are very well-established European banks that are very familiar with the products back home. But when they introduced these products to the local branches, the local managers were not quite sure how these products can help them enhance a deal. Once local managers had done a couple of deals and had a couple of claims paid, they very quickly embraced PRI and credit insurance.

I think it is the same with Asian banks – they just need a bit of time. I don’t think it is all that difficult to get the message across how PRI and credit insurance can help them enhance their deals.

Palmer: There is no doubt that as European banks retrench there are greater opportunities for Asian banks. One of the advantages of the insurance product for a bank is that it enables it to take a bigger ticket in a transaction in a club deal or whatever it might be. Or if it is leading it, they can have a bigger final hold. Because it is a silent participation from the insurer, it does not need to disclose to the borrower that say half of its US$100mn ticket is being laid off in the insurance market. And it is preferable for a bank to use the insurance market because if it lays it off in the banking market it is bringing in a potential competitor who next time might go direct to the borrower and cut it out. So there are a number of advantages.

The other development that we have not yet seen here, except perhaps for the Australian banks, is the centralisation of the insurance function. It tends to be handled by different departments, by the originators. European banks, certainly the big buyers, usually centralise it. It goes through an insurance department, often part of syndications or risk distribution in London or Paris or wherever it might be. So I think that is a trend we can expect in the future.

Chhajer: There is a lot of potential with Asian banks. You will see a surge from Asian banks. How soon is something they will have to decide. It is a question of moving from traditional banking to the new age, cashflow-dependent banking. I think you will see that most international banks are going to be there. They acknowledge the need for cashflow-dependent banking, where you have unsecured credit receivables and where you need to enhance your credit by using unconventional methods.

But most Asian banks are traditional bankers that need collateral and security, which they feel they can get hooked onto, irrespective of whether it serves the purpose when there is actual distress. It is just a matter of how soon a traditional banker becomes a new age cashflow-dependent banker.

Also if you look around the region, most large corporates would typically bank with the local bank in that particular geography. The moment these large corporates move out into a global arena you will find that these regional banks, in order to cater to that requirement, would have to look at cross-currency options. They are very competitive with local currency lending. When it comes to cross-currency they will have to find ways and means to be competitive. That is where you need to look at these alternative options, which in insurance they may find a useful tool to mitigate risk. They will adopt these measures, so I see the potential as huge. It is just a matter of time.

Lim: If I am a bank and I am giving out a loan for say, US$10mn, I would certainly prefer to see that I have some physical assets to go after in the event something goes wrong with the loan.

You give the bank a US$10mn insurance policy instead and I think the bank will be thinking: ‘Yes, but if there is a claim, how can I be sure than I will have my money – bearing in mind the pages of small print in the insurance policy?’

I think it is not just about creating awareness of insurance products, but more importantly the benefits of the products and in particular, that the industry is paying lots of claims every year. So, all of us, both brokers and underwriters, should go out there and say, ‘These are examples of claims that have been paid,’ to give the banks and corporates the comfort that PRI and credit insurance work.

Faysse: Coming back to the question about increased opportunities for Asian banks, we cannot answer this question by looking at banks as one homogeneous market. There will be more opportunities for Asian banks because the other players, being American or European banks, are pulling out or scaling down operations from the region.

Recently we learned that the world’s 29 largest banks would need to raise US$566bn to meet Basel III rules by 2018, which is roughly around 25% of what they have today in capital. So there is definitely a war on capital, and this war is affecting US and European banks more than Asian banks. For example, US banks globally are not really present on the big Asian projects. So mechanically there is more space for Asian banks to step in.


Searle: Do you have any thoughts on what insurers could do to get increased buy-in from the Asian market?

Loh: Of course, this has to be two-sided: what we can offer, and what the bank wants. When we look at it, there are two approaches: reaching out to new participants of this product; and also reviewing the needs of existing buyers who are quite familiar with the product. How do we retain existing buyers and entice them to buy more? Lower pricing and bigger capacity. This is usually what existing buyers are looking for.

Over the last couple of years, the price has softened; it has gone down compared to before, partly because of competition. For underwriting capacity, this has also increased with new entrants to the Asian market. On reaching out to new participants, how do we entice them to take up the products? One way is to create product awareness, because many Asian companies are not familiar with the product or do not know that such product actually exists in the market. Also, many of them could be self-insured, as they think they know the risk better than underwriters. We have to change their perception on this.

Faysse: I agree with Andrew; there are two main factors. The main one to me is product awareness, because when we forecast 15-20% of growth on a yearly basis it is mainly because people will become more comfortable with our products and growth will be driven by this increased demand. For example, within small and medium corporates, it is common thinking that if you know your risk you do not buy insurance. Therefore we have to change this way of thinking, which is very widespread in family-run businesses.

There also is the notion of size. When you try to engage big corporates or even big banks you face large organisations sometimes with departments not communicating that well between one another. We have then to spend time talking to those different departments. We have also to talk to board level to explain that our products can be a risk mitigation tool for them. Once again, product awareness will take time with those big organisations.

Second, we have to show that the insurance market as a whole is paying its claims. From my experience and my understanding, the Arab Spring can be a good example to show that the insurance market answered quite well, paying numerous claims.

Shaw: Can I just add one thing, effectively as a salesman of this product, trying to explain its advantages to institutions and corporates? I agree with you completely; it is all about the claims. It is not very easy to sell something that does not yet exist. It is a piece of paper and a promise to pay, and participation in the event of there being a claim and a problem.

But it is very difficult for a buyer unless they are obligated to do so, unless they are told they have to do it by a credit committee to meet a certain limit, or because capital relief gives them the benefit to be able to do the business in the first place, or a borrower to say, ‘I need to get this insurance, otherwise my bank is not going to lend to me in the first place’. That is the thinking process, because no one wants to pay for something they do not get. A funded solution is very different, because you get the money and you pay for it; it is a very straightforward understanding.

The issue of claim payment needs somehow to be much more transparent. There needs to be a dedicated lobby on behalf of insurers who would all benefit enormously from it. Each broker works very hard to talk with some underwriters who are more transparent than others and can come up with some specifics. But a more dedicated presentational style co-ordinated amongst insurers would be a massive benefit to everyone, and it would help banks who are trying to fight internally to prove to their own regulators that this is a product that works. I think it would make a huge difference.

Regulators will never suddenly give a green light. Regulators very rarely make a definitive statement about what something provides anyway. They say, ‘These are the guidelines. You have to decide whether you meet those criteria, and we might come and visit you one day and decide’. We have all worked with banks that are huge buyers of insurance and very definitely get capital relief, and they have to make massive models to establish why they are able to do so within, say, the German regulator or the French regulator. But there are others that do not have the same capacity. Many different banks have a totally different view on Basel II and what Basel III will be on this issue just because they have to make the evaluation themselves. But there is definite progress there as well and I think Australia will come through shortly.

Chhajer: I agree. If you look at the world regulatory angle, it is not a factor of regulating or micro-managing risk within the bank. What they have in Basel III is the standard and advanced procedures. When a bank moves from standard to advanced it becomes more subjective, more internally linked and dependent on how a bank looks at risk themselves. So if they are able to demonstrate to the regulator that they have internal means to see the risk and take measures to mitigate that risk then the regulator is more likely to agree to their point of view.

That is where I think most of the international banks, like the Europeans with those processes in place, better utilise credit insurance. They would be able to derive much more out of it than a local bank.

So we are already observing that regulators rely on a bank’s ability to demonstrate that they are able to manage their risk and in such cases are not interested in micro-managing them.

Lim: Two things. First, we should get as many claims stories out there as we can so that the relatively new Asian market appreciates the benefits of PRI and credit insurance policies.

The second thing – maybe this is a bit controversial – I think insurers should have more user-friendly policy forms. As a broker, I am out talking to the client and I now have got to the point where the client agrees and says, ‘Okay, I need this and I want this’.

Then you come to the policy form. His legal people have some 25 questions. That creates a bit of a confidence problem for the client.


Searle: Texel and BPL are two new brokers who have just set up in Singapore; and there has been significant investment. It would be worthwhile to ask them to comment on why they considered this investment worthwhile.

Shaw: It was something that was looked at very seriously over a long period of time, and we looked at the markets generally. Texel is a group which has expanded quite rapidly and has a very solid base in the western banking and trader markets in the US and across Europe. There is a limitation to that market, in part because the world fell apart and things have changed. Certainly for a period we talked a lot about withdrawal, but we have not really seen that much withdrawal. There was a slowdown and a lot of European banks have come back very strongly. If we look at some of the recent RCFs in Asia it is striking how active the French banks have been. That could well change again.

We felt two things. First of all, to be honest, a number of our clients, both traders and banks, required that we be out here. They said, ‘We would like you here in the same time zone in the same area doing the same business’, so in part it was working with the wishes or specific requests of clients. Also Singapore is changing so rapidly, as we have talked about before. There is so much more liquidity here. IE has done amazing things to encourage a lot of traders to move here and expand, and in some cases create their headquarters here. That changes everything because eventually their distribution will be here. There are now 17 underwriters, and growing, doing this business so the knowledge and legal base is here. The infrastructure in Singapore is here as a stepping stone to the rest of Asia and the wider world.

I think it is a natural hedge for any company, in a service industry or any industry, to make sure that you are located in the right areas. Singapore and Asia has always been a trade finance market, whether it has been cheap or not. There is a huge amount of trade going on here and in the region. If you are in the US, Scandinavia or Canada, it is very much an ECA-driven lending environment and banks do not take a huge amount of risk, it is a different mechanism for finance in these areas. Commodity finance has gone on here for a very long time, and traders have been trading
here for a very long time, so the culture of our product works very well.

Palmer: We had no representation in Asia Pacific, so it was obvious to us that to provide client coverage and servicing we needed to be here, and we saw the market growth. Singapore by some estimates accounts for about 10% of the total volume of the PRI market. Interestingly, it is where the premium is growing fastest, so from that point of view we wanted to be here as well.

I would add that we are also present in Hong Kong, so for us Asia Pacific is not just Singapore. Singapore is very important as a trading hub and trade finance centre, but having a presence in Hong Kong widens our geographical coverage.


Searle: Freddie and Abhishek, you have both been in Singapore for a while. Could you comment firsthand on the demand for products, and linked to what we were talking about before, whether there will be a continuing demand?

Chhajer: I have been in Singapore for the last two years, but before that as an underwriter, as well as a broker. We used to deal with clients who required insurance policies to be placed in the region and elsewhere. With that experience I would say that within a particular bank the various divisions who have sought insurance have increased. It is not limited to just transaction banking, global markets, investment banking or corporate banking. It has become wider, for example even the syndications desk could look for credit insurance before syndicating. So we see a lot of interest within the banks that has grown over time.

Apart from banks there are traditional buyers of insurance like consumer durable players, large traders and bunkering companies. With Singapore being the hub of the bunkering world, we see a lot of interest there.

Commodity players always had Singapore as their main hub. That continues to be a focus for most insurers. We see a lot of interest coming out of particular geographies on the pharma side, because on that side a lot of investment is being made to non-European, non-US-centric buyers. So you see a lot of trade happening from Asia into Africa for pharmaceutical products.

On the electronics side it has been a traditional stronghold for most of North Asia: Japan, South Korea, Taiwan and China, selling to the European and US markets. I would not say that growth is happening on the business side, but growth is happening on the purchasing of credit insurance because they see heightened risk from where they have been trading. That is what is driving the growth of insurance.

Lim: Looking back to when I first started some 20 years ago, our entire portfolio then was mostly the basic confiscation and plain vanilla receivables policies. It is a lot more interesting now. We now have the full range of PRI and credit insurance covering pre and post-export risks to non-honouring of lettes of credit, lender’s PRI, confiscation, whole turnover, key buyers credit and so on. Moving forward, you have new players in terms of new banks and new traders and corporates, both from the local as well as the regional markets, so I am sure there will be new demands and hopefully the market can respond with new innovative products to meet their requirements.