Anthony Palmer, deputy chairman of BPL Global, is retiring this week. GTR caught up with him to talk about his wealth of experience in the credit and political risk insurance market, and how it has changed over the last four decades.
Palmer’s career started in 1975, with seven years at III, the political risk subsidiary of Hogg Robinson. In 1983, he founded BPL Global with Charles Berry and Robert Lyle and has since helped the company expand into Asia, the Middle East and Turkey. Retiring on March 31, Palmer will remain involved with BPL Global as a non-executive director.
GTR: How has the credit and political risk insurance (CPRI) changed over the last four decades?
Palmer: When I started working at III in 1975, we just called it the PRI market. Then, there were just a handful of insurers, led by two or three Lloyd’s syndicates, whereas now there are approximately 50 insurers active in the market.
The credit insurance industry did exist in 1975, of course. Basically, most countries in Europe had one domestic credit insurer and an export credit agency.
What we were doing was pure political risk cover: providing insurance against expropriation and currency inconvertibility for companies investing cross-border. We started getting involved in insuring exporters against contract frustration, and then in the late ’70s, early ’80s, we were able to cover non-payment by public buyers. In 1994, Lloyd’s syndicates were allowed to start covering private buyer non-payment.
In 1975, the maximum available capacity for a transaction was maybe US$100mn, and the normal maximum tenor was 12 months, so it provided very limited cover. Today, the market can provide up to US$2bn per transaction and tenors can go up to 15 years. So it’s a dramatic change.
In the early days, the users, or buyers, of the product tended to be corporates – which were either investing cross-border or exporting – but these days the majority of the buyers are financial institutions, which probably account for around two-thirds of the premium volume.
What we now call the CPRI market is still in the early stages of its life cycle, unlike the traditional short-term multi-buyer credit insurance market, which is at the mature stage of the product life cycle. The CPRI market is still at the development stage, evolving rapidly in terms of the number of players, the products and the types of clients.
GTR: What has driven banks’ increased usage of the CPRI product?
Palmer: What really made it take off was Basel II [published in 2004, implemented from 2008 onwards], and the acceptance that a comprehensive non-payment insurance policy can satisfy the definition of credit risk mitigation and therefore the banks can get capital relief. That really was a big turning point for the market.
GTR: What have been some of the most remarkable events and developments that you have witnessed in the industry?
Palmer: Undoubtedly, the Lloyd’s crisis of the late ’80s and early ’90s, when the Lloyd’s insurance market nearly went under, was a huge event. If anything was keeping me awake at night, it was the Lloyd’s crisis. That was a huge threat because, in those days, a lot of the insurers were Lloyd’s syndicates, and if Lloyd’s had gone under, that would have had a devastating effect on supply. Fortunately, the market weathered the storm. But it meant that the number of Lloyd’s syndicates reduced dramatically from 400 at one stage down to about 50 or 60, eliminating some of the underwriters in our market.
Lloyd’s came out leaner but stronger and has really flourished since then. It emerged with a completely different structure in place: it no longer depended on private individuals with unlimited liability, which had been the Lloyd’s model for hundreds of years, and it introduced much more professional underwriting standards and regulation.
The other big macro event was 9/11, which caused the general insurance market to harden; in other words, premium rates in other classes went up, with the effect that there was less appetite for the more exotic types of insurance like CPRI. We had a difficult year or two.
The global financial crisis of 2008 obviously was a big event, and the market did experience significant claims. We saw a lot of defaults and about US$2.5bn in claims being paid, but they were paid in full and on time, which certainly validated the product.
But the global financial crisis was really a developed world crisis. More important for our business was the Asian/CIS crisis of the late 1990s, which was an emerging market crisis, and because the CPRI market was smaller then, it had more a significant effect, even though the total value of claims was lower, probably around US$1bn for the market as a whole.
GTR: How do you see the market today, and do you have any predictions for the future?
Palmer: There is a healthy balance of supply and demand, which I expect to continue. Although there has been an uptick in claims in the last year, it’s still a soft market; in other words, the terms of trade are still in favour of the insurance buyer.
The market is well set for further growth. As I said, we’ve got over 50 insurers active in the market, and I don’t see that changing anytime soon. On the demand side, we are going to see continuing need from banks for the product, as well as from multinationals, commodity traders, contractors and exporters.
Geographically, Dubai, where we opened a rep office two years ago, is primed for growth. In the past, we tended to think of the Middle East as where the risks were rather than where the clients were, but now we’re definitely seeing increased demand from both corporates and banks in the region for CPRI products. Asia Pacific, where I spent three years from 2012, now has an established hub for our market in Singapore and offers significant growth opportunity.
For the CPRI market in general, and for BPL Global in particular, the future is therefore bright. We have had succession plans in place for some time and the company is in excellent hands to steer us through the next few decades.