RKH Specialty, part of the Hyperion Insurance Group, has embarked on ambitious plans to grow its Financial Risks division by meeting international market demand for new and innovative credit risk solutions.
For leading insurance broker RKH Specialty, achieving market leadership is a prime objective.
The Financial Risks division, which focuses on political risks and structured credit, international trade credit and surety is taking major steps to grow its client base, extend its geographical coverage and enhance its product offering, whilst also investing heavily in its advanced technological capability.
Today, it is looking to internationalise its Financial Risks activities, expand product development and significantly enhance “TEPFIN®”, the unique electronic trading platform it deploys for structured credit.
It is also close to concluding its acquisition of leading UK surety specialist broker PMG, a deal still subject to FCA approval, which will see it emerge as a leader in the surety guarantee market.
“We are unique in that we have put these three specialist credit default disciplines together in one division which enables us to serve our clients and prospects across all three product ranges as one,” says Neil Galletti, managing director of RKH Specialty Financial Risks. “We are also developing our business at speed. As a leading player in the political risk and structured credit market, with TEPFIN®, we have a clear ambition to continue to grow our position in this competitive market. There is also a massive commitment to growing our international trade credit offering, and we are recruiting leading senior people with the specialist skills and knowledge needed to propel us on a global scale.”
Moving the goalposts with TEPFIN®
For the Financial Risks division, significantly enhancing its state-of-the-art electronic trading platform TEPFIN®, represents a major part of its journey forward.
The revolutionary platform was originally built in-house in 2004 to facilitate and speed up the placement of plain vanilla structured credit insurance. It does this by connecting clients and underwriters online, thereby revolutionising a traditionally face-to-face business. Underwriters can use the platform to upload their limits and premium rates in real time, thereby allowing clients to benefit from instant access to online quotes and a live view of capacity whilst providing the opportunity to bind that capacity online.
“We are now bringing TEPFIN® into the 21st century by enhancing its look and feel and adding new functionality,” says divisional director, Oliver Bowes, pointing out that recently over 50 insurers (predominantly based in London) have signed up to the platform with up to 10 FIs and five corporate entities, mainly commodity traders, joining as policyholders.
“We have recently completely redeveloped TEPFIN® and the latest enhancements will see the offering expanded from four credit default products at launch in 2004 to 17 products today. Originally, we started with documentary credits and open account plain vanilla-type business but we are now expanding into medium and longer-term products such as loans for FIs.”
He adds that functionality is being enhanced with insurers being provided with the capability to upload their counterparty limits across a variety of obligor names – banks, buyers and/or borrowers – in one upload as opposed to having to input limits on an entity-by-entity basis.
“We have also developed the platform so as to make it multi-broker compatible. This will enable other brokers to use the platform for their clients, thereby increasing the usage and gain market critical mass. The reach of TEPFIN® will increase substantially as more players
start using it, plus it’s compatible across all smart phones and tablets as well as being accessible 24/7 anywhere across
the globe,” says Bowes.
Meanwhile, Galletti points out that in this way, TEPFIN® will meet a growing market-wide need for an electronic trading platform to manage the distribution and placement of credit insurance – as is happening throughout the insurance industry across all general insurance products.
“As with everything else, globalisation and commoditisation is rife in this industry and we have developed TEPFIN® over the last 10 years as a commoditised tool to be ready for this,” he says. “At RKH Specialty, we are at the forefront of developments in this business with a state-of-the-art platform that is ready to meet growing demand from the wider market.”
Aside from major enhancements to TEPFIN®, and plans to position it as the industry standard platform that all players can use, the division is also looking to radically enhance its underlying products and policy documentation in political risks and structured credit.
Another major ambition is to grow its international capability for short-term receivables finance insurance solutions.
Trade credit goes global
Meanwhile, the Financial Risks division’s international trade credit business is also set for major global expansion as it pursues plans to leverage on the worldwide network of Howden International, which merged with RKH Specialty last year.
This objective is being driven by newly-appointed Gert Schlossmacher who joined the division recently from Euler Hermes, where he was an acting board member and recently in charge of global sales activities.
“To date the Financial Risks division has mainly operated out of London,” says Schlossmacher, now second managing director of Financial Risks as well as global head of trade credit for Howden International. “Howden International is a truly global company but has not yet been deeply involved in financial risk activities.
“My focus will be on expanding our operations into those regions and countries where we foresee huge potential for tailor-made trade credit, political risk and structured credit and surety solutions.
“Howden is an international business with local offices in 37 countries, which provides the ideal platform to invest further into Financial Risks’ global expansion. We now plan to offer our services via Howden offices and to recruit the most talented and senior individuals in the respective regions. This will give us global reach with a local touch.”
Initially, the focus will be on expanding the Financial Risks division’s international trade credit business in continental Europe with a special focus on cross-selling to existing Howden clients in the most relevant markets.
“We will also be driving our business across the fast-growing GCC region, where the daily changing landscape is creating massive potential and opportunity,” says Schlossmacher. “Asia is also on our radar, which we might further turn into additional financial risk opportunities with a relatively new team that recently joined the company in Singapore. Howden has a strong presence there.”
The Financial Risks division is also considering how it can leverage potential for their lines of business in the Americas, where one option is to offer its services directly to local independent brokers in the region.
A growing surety business
RKH Financial Risks also has major plans to grow its surety offering, which started over a year ago to develop opportunities in risk participations.
RKH Specialty is currently in the process of purchasing PMG, a specialist surety broker.
“We are now concluding the acquisition of PMG, which is still subject to FCA approval, and this will make us one of the leading brokers in the surety market,” says Galletti. “PMG is a niche broker, which is working with a list of major clients in the conventional surety issuance sphere.”
He points out that the surety business will benefit from the addition of the specialist skills and knowledge of PMG’s established surety team to its own team led by James Souter.
Over the past 18 months the Financial Risks division has been developing its capabilities with a relatively new surety product which utilises surety capacity to support banks in their issuance of guarantees.
“This is a new product that surety insurers have been looking to entertain for the very first time,” says Galletti, explaining that it will enable surety insurers to collaborate with banks on the provision of guarantees to bank clients.
“Traditionally, the surety insurers and international banks have been direct competitors in this market. Customers needing to issue guarantees either went to their banks or to the surety market. Now, surety insurers are offering to co-issue guarantees with banks as syndication partners or standing behind the banks.”
He adds that the new product offering will provide banks with additional capital support, enabling them to offer their clients larger commitments.
Whilst many banks, when arranging guarantees that exceed their counterparty limits, already syndicate these deals among other banks, the use of surety insurers offers advantages in terms of confidentiality and non-competitive capacity.
“When banks syndicate guarantees among other banks, they might at the same time introduce a potential competitor to their client,” says Galletti, pointing out that banks have been looking out for this type of “alternative” product for a number of years. “The surety insurance market can be a less competitive and more approachable partner. Surety insurers are also well-rated institutions, and typically have AA or higher ratings, making them a very viable sources of additional capital.”
RKH Specialty Financial Risks has already laid down the foundations for this new surety market developing bespoke risk participation structures between the banks and surety insurers.
Reflecting on all these exciting recent developments, the company firmly believes that it has put itself ahead of the curve when it comes to meeting market demand for new services and innovation.