In the year of BPL Global’s 35th anniversary, which was celebrated earlier this year with a reception at the Natural History Museum, joint managing directors Sian Aspinall and James Esdaile discuss the growth of the Credit and Political Risk Insurance (CPRI) market and where it is heading.
How has the CPRI market developed over the past 35 years?
Esdaile: It has grown exponentially. 35 years ago it was a fledgling market with a very small number of underwriters led by two or three Lloyd’s syndicates and company markets. In fact, it wasn’t until 1995 that Lloyd’s syndicates were even allowed to start writing non-payment business for private buyers – something which is now a staple product of the market, with theoretical maximum lines totalling US$2.4bn and tenors of up to15 years.
Even since 1997 – the year that I joined BPL Global – I’ve seen the specialist CPRI market make huge strides. Back then there were only 10 or so individual insurers seriously committed to the business; now we have nearly 60. The specialist CPRI market is now a US$2.5-3bn industry in terms of annual premium throughput, with an estimated gross market exposure of US$260bn or so. These numbers demonstrate an insurance class with a true sense of identity.
Aspinall: Certainly, the capacity of the market when BPL Global was formedwas tiny compared to today. You were probably looking at a maximum of US$100mn per risk, whereas today, theoretically, there is US$3bn of capacity available for public obligor non-payment risk. The periods covered have gone from being limited to 12 months, to instances of project finance tenors stretching to 25 years.
The client base has also evolved. 35 years ago, buyers of the product tended to be corporates exporting or investing overseas; nowadays the majority are financial institutions, accounting for approximately two-thirds of the premium volume. Similarly, the type of risks that the market can cover has also changed dramatically from its formative years. We have seen a real impetus in the market to be agile and bring in specialists to inform the understanding of more niche, complex and longer-tail business lines, and the underlying risks involved.
What have been the key drivers?
Aspinall: Increased global demand has been a key one. We began as a London wholesaler, we are now a global retailer. London will likely always be the most important CPRI market, but we are witnessing increased demand from buyers in New York, Singapore and Dubai. More recent and specific drivers are also at play – the new commodities cycle, for example, presents a more positive trading environment for exporters and traders, through either recovered prices or increased trading volumes. As a result, we are seeing significant market activity in trading hubs such as Geneva – where, incidentally, we’ve just opened an office.
Esdaile: As you can imagine, demand for the CPRI market’s offerings has grown due to heightened geopolitical instability. But it is not just political volatility that drives demand for CPRI – we have seen increased use of the product by European and Asian banks for both risk mitigation and capital relief under Basel III regulations. At the same time, we are able to meet this demand given there is far more capital being injected into the business today. A long-standing low-interest rate environment and the increased desire among insurers to diversify their product offering has helped this.
Where is the market heading next?
Aspinall: The strength of the market is undeniable. Yet, we shouldn’t rest on our laurels. It is clear that the market needs to improve in terms of promoting itself through pooling statistics and jointly tackling outside threats – be those regulatory or otherwise. We think the provision by the market of claims data on financial institutions [which you can read in this issue of GTR +insurance] signals a major step in the right direction, supporting the market’s responsiveness in meeting its responsibilities throughout the challenging economic climate of the global financial crisis and beyond. Next, we need to ensure this responsiveness and engagement continues, covering all products and clients. Ultimately, we should be moving towards having one truly representative market body.
Esdaile: Product-wise, many of our clients are broadening their use of CPRI across a wider range of their business lines – notably into areas such as real estate finance and aircraft finance. We are also witnessing increased demand from our banking and corporate clients for portfolio credit insurance, which is something that has been successfully used over many years by some of the major commodity traders. With the right structuring, the product can be leveraged not just for risk mitigation, but to grow trade finance portfolios. It is for this reason that this year we created a specialist Excess of Loss credit insurance team, focused on broadening use of the product within the market. We are ready to meet this changing nature of demand head-on.
What role will digitalisation play?
Aspinall: My view, shared by my colleagues, is that face-to-face broking or underwriting will continue to achieve the best results for clients. People will always want to deal with people, and people are what make BPL Global what it is today. That said, the world has moved on and today’s technology is advancing at an unprecedented pace. Digitalisation is ever more conspicuous in our business – and we must keep up. You used to have to page a broker using the tannoy in Lloyd’s; now you can just text them. Similarly, the enquiry process has moved from fax, to email. But technology has the potential to truly transform the core workings of the insurance industry – if designed and executed intelligently.
Esdaile: The establishment of London insurance market’s electronic placing platform – which enables brokers and insurers to quote, negotiate, bind and endorse business digitally – is a fantastic example of how technology can drive efficiency, speed and accuracy to the benefit of the market, and ultimately, clients. We recognise this and were the first broker to place a CPRI policy on PPL this year.
And finally, what is the future for BPL Global?
Esdaile: BPL Global began in 1983 with just four staff and a commitment to remain specialist, independent, and client-centric. Since then, we have grown to become the largest specialist broking team in the CPRI market, with many of our clients today having been clients since before I joined. Mine and Sian’s job is to maintain the ethos of BPL Global and the legacy we’ve been given – retaining our uniqueness while striking a balance with the demands of the modern world. We can now leave our ties behind when entering Lloyd’s, but we’ll always keep our core values.
Aspinall: This past year has brought many new milestones for us – the opening of our office in Geneva, the creation of our Excess of Loss team, the publication of our first Market Insight report to name a few. This growth reflects us well – we may be 35 years old, but we are a young company, with over 70% ownership of BPL Global sitting with colleagues who are in their 40s or younger. But it is an evolution not a revolution. We are, and always will be, a specialist, independent broker that represents and upholds the interests of our clients above all else – while ensuring we are forward-thinking and capable of thriving in the hostile and ever-changing business world we inhabit.