How does reduced-price oil affect the insurance market when it comes to risk assessment, potential claims and new avenues for business? GTR gathered trade credit and political risk insurance experts to talk about the global energy sector.
Matthew Solley, executive director, credit & political risks, Arthur J Gallagher (chair)
Don Asadorian, senior vice-president, Ironshore
Holly Din, senior underwriter, trade credit & political risk, Atradius
Neil Edwards, class underwriter, credit and political risk, Chaucer
Nicola Marriage, class underwriter, political risk and credit, Novae
Nicholas Robinson, class underwriter, political risk & trade credit, Marketform
Murray Ross, underwriting manager, political risks & structured trade credit, Ace Global Markets
Mimi Rumpeltin, underwriter, Aspen
Kade Spears, divisional head, specialty division, The Channel Syndicate
Mark Gubbins, managing director, credit & political risks, Arthur J Gallagher
Solley: How does the reduced oil price affect the insurance market when it comes to risk assessment?
Ross: It has a huge impact. From where we sit, the two themes to look at are risk assessment of your current portfolio and risk assessment going forward. When you look at the current portfolio on a very general basis, you have a portfolio where, if you look at most of the banks and talk about reserve-based lending (RBL) or revolving credit facilities (RCFs), they were factored in looking at a US$60-a-barrel price. The first thing we had to do when the oil price dropped was to do a quick look through of the portfolio and try to work out what could be in trouble and what could be stressed, and to try to talk to banks about that.
The other impact is which governments are in trouble and which governments are going to benefit from this. It is easy to identify the losers rather than the winners straight off so, from where we sat, it is more of a negative start. You had some obvious examples, such as Angola. Russia is more complex, because you have sanctions as well as the oil price, so you cannot just say it is a pure oil or gas play in terms of the prices. Also, there are other countries, like Gabon.
On the positive side, however, if you talk about fuel subsidies, it is an opportunity for places like Indonesia to come to the fore and start making some changes while they have a chance in a low oil price environment. Also, Turkey, notwithstanding current political issues that may be going again, is a big net importer of oil and there are opportunities there. From our point of view, it has made us more cautious but it has not made us more risk-averse.
Asadorian: There are also some benefits to the lower price of oil going forward. Many industries are highly dependent on it – the transportation industries, leisure/pleasure industries, and refineries, for example; whether oil, copper or aluminium refineries. Having cheaper fuel input is also a benefit that we can look to going forward.
Marriage: I think the winner/loser analogy is really good because, if you look at your book, you can see that there are certain countries that are going to benefit and certain that will lose out. However, looking at our book, we have 50% focused on oil, of which 80% are importers, so at present the low oil price represents an improvement in risk for us.
Robinson: A static oil price is more difficult for our market than a fluctuating oil price. A rising and falling oil price creates opportunity, particularly with our trading clients. Where we lose out on some capex investment in the oil sector, because oil prices are low, we see more trader income coming into the book, so there are not only winners and losers in the sense of the way that our book is structured at the moment from a risk perspective, but there are also positives and negatives from a client perspective.
Solley: On the winners’ side, has the impact been significant enough to affect broader appetite and pricing? If you take Turkey, they have political risk issues going on, but there is a net benefit to them. Do you think the oil price, as it stands, has contributed at all to where you are pricing risk there?
Spears: It has certainly impacted our view on different industries. Whereas before, we had a very negative outlook on the aviation sector, for the first time in a very long time we have a positive outlook and have appetite. It is still filtering through on the country aspect, as various countries look to rebalance. From an industry perspective, however, we have adjusted very quickly and appetite has increased.
Solley: Are you taking advice as to what you think the future is going to be from a price perspective? Aviation is an interesting sector. It directly benefits very quickly, but aviation finance is, typically, medium-to-long-term; five to 10 years, for example. There are benefits now but how do you counter that with not really being too sure of the outlook for the long term?
Spears: We have had quite a bearish view on crude oil for some time. It is not a function of demand but a function of supply. There has been a significant amount of additional supply that has come into the market. There is a demand driver as well, in that the largest growth in demand was largely coming from China, and we have a very negative outlook on China, as its economy rebalances. We have had quite a negative view on crude oil over the past 18 months, and certainly we are positioning for a lower crude oil price environment over the medium term. We are taking that view and saying: ‘From our point of view, based on what we understand, we do not know what the price will be but we do not think it will be back at US$100 a barrel any time soon.’
Solley: What about from a pricing perspective? Risk has inherently increased as a consequence. Do you think that you are getting decent returns? What we see with clients more generally is that there is certainly a huge amount of liquidity again in the market, but very much around the short term. When we are talking with banks – not necessarily tied to oil but more generally – as soon as you start to look at five years plus, the cost of funding becomes a big factor and it is difficult to get liquidity into transactions. Are there issues there in terms of a big pricing differential between short term, where there is a lot of liquidity, and maybe some of the longer-term projects that are difficult to get home? As part of that, are you receiving the returns for the risks?
Edwards: There are different factors at work between the short and long-term deals. Any impact from an oil price reduction means that there is less business to go around in our market, by the simple fact that a cargo of crude oil is not worth what it was for the majority of 2014 and prior years and therefore, less insurance needs to be purchased.
Two years ago, when a lot of capacity came into the market, there were enough transactions to satisfy the appetite of the market and consequently it did not have that great an effect on pricing, whereas this year, as a function of the low oil and other commodity prices, the amount of business has reduced and, therefore, has made our market more competitive.
This has manifested itself in terms of short-term vs long-term pricing where appetite for short-term business remains high and therefore there is downward pressure on pricing.
Long term, the oil-producing nations – and especially those that have already hedged out or encumbered a lot of their production – are the ones that are going to feel the strain, because they have not left themselves much wiggle room. A lot of those deals were done at an oil price factoring in US$70-100, depending on the country. For long-term business, for the oil producing nations with a lot of project risk, there has not been a large increase in pricing but we are starting to see comparatively less pressure for reductions.
Ross: The other thing that you also have to factor in is that it is not just the oil price that has dropped, but commodities across the board have dropped in value. Normally, your truism is meant to be: ‘Oil price reduces, global trade increases.’ There is a bounce to the world economy. I do not see that that has happened. You spoke about the impact on insurance; the other impact has been that all commodity prices are down, so there is less business as a result. It is making it a tougher environment, where we probably have the most capacity we have ever had in our market sat out there.
Marriage: We have seen an increase in the five-year pre-pays in Venezuela, Ecuador, Nigeria and Egypt, and we have seen some opportunities that have come about which I do not think would have arisen had there not been the contraction on the short-term side. There are also probably going to be extensions to some of the long-term pre-pays as well, as a result of the reduction in oil price, which, again, will generate premium through the extension from, say, five to seven years. There are, then, some issues in terms of the short term, but in terms of the pre-pay for the oil producing nations, there will be some opportunities that may help counteract the premium lost elsewhere.
Edwards: We are starting to see a return to the market of names that clients had stopped buying cover on due to the fact that when the oil price was so high, it was not seen as a high-risk entity, such as in Kazakhstan.
Such risks have come back to the market as at a lower oil price, they are perceived as a potentially higher risk than when the oil price is US$100-plus.
Other new transactions involving countries that had not previously encumbered a lot of their production are also coming to the market: in Ghana, Equatorial Guinea, and Argentina. Also on the corporate side, companies that had not previously engaged all available production in pre-export finances (PXFs) at the previous high oil prices are now approaching the markets under the new conditions.
Spears: There are three points that I would like to make. First, we track our pricing against benchmarks that go back over 20 years from data produced by S&P and Moody’s. What we see is that, as soon as we drop into the B range, pricing is not adequate and we are struggling to support deals in that range. As soon as we move into the BB and certainly into the investment-grade categories, against those benchmarks, pricing is more than adequate and there is plenty of margin there to support us.
That ties into point two, which is that I am not sure that we are necessarily price-setters rather than price-takers. Our clients have been dramatically impacted by quantitative easing in the capital markets, and the capital market has had a huge appetite for riskier assets, which you can see in the pricing in the B range. What started happening in the second quarter of last year is that capital market appetite for emerging market assets began decreasing. Over time, as that appetite diminishes and that liquidity withdraws from especially some of the more challenging emerging markets in parts of Sub-Saharan Africa or a few markets in Latin America, we are going to see pricing start to increase. We have seen that.
My third point is that one of the positives about the oil price falling and impacting some of these countries is that it is changing the pricing environment; it is changing how banks structure deals.
On the whole, if you are willing to take that risk and you think that the underlying fundamentals are good, there are some very good opportunities today.
Robinson: Whether we are talking about pricing or, generically, the enquiries we see, we are quite a reactive market, and the price-setter/price-taker point is well made. We have to respond to what we are shown. We can drive the enquiries we see to a degree, but we are not setting a great deal of pricing across our broad spectrum of clients. There are certain clients and sectors where we are price setters, but the position where we are at the moment, with that huge amount of market capacity, is significant.
Your biannual report acknowledges that we are at a high-capacity point at the moment, but we are also at a high enquiry volume point at the moment. We are talking about oil today but it goes back to the global financial crisis as well. We spent a long period of time being very concerned as a market over the volume of claims we were seeing during that period. We satisfactorily went through that period and paid those claims, and we have a new client base that appreciates what we did as a market during that period. What it has meant, however, is that, every year since then, we have seen an increasing volume of enquiries.
As commodity prices and oil prices are low and as project capex risk is not high on people’s agenda at the moment, despite those factors, we are still seeing enquiry volume, and what we have to do is to be receptive to the enquiries that we see – and aviation is a good example. It means that we have to be quite nimble in moving to look at different areas, as they come to our market, essentially. If we had a decade leading up to the global financial crisis of getting involved in one or two specific areas, the main trend post the global financial crisis is the sheer variety of enquiries and risks in industry sectors and risk types we are being asked to look at. Oil remains the core of the market and of the book, so oil price is fundamental to what we are doing, but we are having to look at and gain knowledge in other areas as well.
Asadorian: I fully agree. We are seeing a lot in the way of increased submissions coming from new clients, not just here in the traditional European market but now coming out of the Asian and Latin American markets with the increased presence there. We have to be much more selective than we were in the past, not just in oil and gas, but with all of the commodities. Iron ore is a great example as is the steel vertical that goes with it. Transactions that we would look at in the past may not make as much sense now. We are certainly taking a look at what our global exposure is to iron ore and/or to these other verticals.
What we have also seen in terms of premium rate and pricing is competition from the increased number of markets that are looking to do business. For us in particular the CF class of business seems to be even more competitively priced than anything else over the past year or two. We will put out a rate which we think is appropriate for a three-to-five-year transaction and we will be told: ‘The market is quoting about 50% of what you are quoting it at,’ and we are saying: ‘We just cannot believe that. Our pricing model says it should be here.’ That is an area that we have found to be very competitive, even going out five to 10 years in tenor.
Spears: I have management responsibility for four other lines of insurance, and I still think the trade credit and political risk market is in a much better place. We have a group of clients who have gone from, 10 years ago, buying for purely risk-based reasons – they were doing trade in a part of Sub-Saharan Africa, where they had limited information, and they were concerned about being repaid or taking delivery of the products – to a client base that now largely buys for regulatory reasons, which is very unique in the insurance market. As has been alluded to, these are clients who buy because they prefer to work with insurance. Yes, there is lot of capacity, it is challenging and pricing is under pressure on some of the short-term trader-related business, but we are in a much better position than any other line of insurance that I can see.
The one point on the traders is that that is the area where we probably all feel that there is significant pressure. Just as an example, over the course of the past 18 months, we have started to work with two traders who, historically, bought only a few policies, if at all. We are supporting both of those on well over 20 trades around the world, so people continue to come into the market. It is a positive situation for us.
Ross: The other thing about traders using the oil market is that we are used to dealing with oil prices going up and down. This is not necessarily a new dynamic for us as a market; we are used to dealing with oil prices. We probably understand that better and are comfortable with that. The challenge is that we are now exposed to new areas that we have to try to understand and get our heads around. Perversely, the oil price, doing what it does, makes you more selective about your risk, and you are a bit more cautious, but it does not put you off doing oil-related deals. That is still the core of what most of our market does. If anything, what we have at the moment is more of a crossroads in terms of how we treat the other enquiries that we are seeing.
If you look at what our market is trying to do to react, we are looking at the export credit agency (ECA) and multilateral route. The other route is to spread wider in terms of sectors. With both of those, however, there are dangers in that the track records are not there that are with oil.
Rumpeltin: To some degree, doing fewer oil deals means a natural diversification of the book, which is arguably a really good thing across the market. Banks have to follow that same thing. They are not doing as many oil deals. They have to physically go and proactively bank some of these sub-sovereigns that we are seeing. Liquidity is there in the banking sector as well, which is driving down the price.
Marriage: From a risk assessment point of view, we will be focusing on low-cost producers, so they will become more insurable, whereas the high-cost producers will probably become names that are harder to insure because there is more risk attached to them.
Solley: It would be great to have a discussion around what is out there related to oil from a claims perspective and what the potential is, and to some territories that we think are closer to the cusp than others and where you have a particularly sharp focus.
Asadorian: One particular area in the oil and gas sector that we have seen affected from a client perspective is the production side: the companies who provide services to and rely upon the big oil majors. They have contracts with them to go out and drill for oil and suddenly, because of the drop in the price of oil the oil majors are saying: ‘We are cancelling the contract’ or: ‘We are going to rewrite the contract’, or: ‘We just do not need it right now.’ Suddenly their rigs are idle, and they have to find a way to redeploy them.
Interestingly the issue is – and we talked about the volatility –that these service companies can deal with stability in the price of oil. If it is US$60 a barrel they know how many rigs they can deploy and how many employees they can bring in, and they can put together a forecast and a plan for what they are going to do. However with the prices moving and down, if it suddenly drops they have to cut expenses and to idle some of their rigs; if the price goes up they have to figure out how to redeploy the rigs and hire more people. We are seeing this kind of effect on the upstream side.
Solley: Contractors and the like.
Asadorian: Contractors and service providers in some of those South American countries where, in particular, we are seeing some interesting developments.
Robinson: It goes back to the point made earlier about being able to identify the high-cost and low-cost producers. Being able to identify the nimble and non-nimble contractors at the level that Don is talking about is something that we are coming to terms with at the moment. It is an equally valid point that relates to oil price. Where you can take things off-hire and on-hire, and be a more nimble contractor, these are areas that we are concentrating on in terms of trying to manipulate our book to pick and choose the right people we are working with.
Solley: Has the oil price impact hit severely enough yet that you are being asked to consider paying claims, or is it the case that that is going to be six months down the line, if pricing sustains at current levels?
Robinson: We are not there yet.
Edwards: The countries that have felt the strain the hardest are those that were teetering on the edge before the oil price drop and this has pushed them even closer, and were being very cautiously underwritten in the market already including risks in countries such as Argentina and Venezuela. Such countries are the most vulnerable due to a general lack of planning to take into account for the oil price dropping.
As a strong sign that certain obligors are beginning to feel the strain there have been a lot of requests for, or completions of rescheduling of prepayments in the market. A number of deals have been extended in terms of tenor to allow obligors some breathing room and we are dealing with an increasing number of covenant breaches as obligors have begun to feel the stresses placed on them by the price drop.
Our client base has performed proactively in this situation and they have acted very quickly in certain countries including on deals which had not been closed at high oil price up to and including 2014 have already been restructured for example from a five-year to a seven-year deal, to take into account the fact that it is going to take longer to meet the obligations in monetary terms.
Rumpeltin: A lot of this is also done proactively. We price in the worst-case scenario in terms of oil price from the outset, look at each individual risk, and say: ‘At what price is this no longer a good deal?’ or ‘At what price does the return that we can achieve not make sense?’ What we are seeing reschedule or wobble slightly are not entirely shocking to us. We think: ‘At the time, they seemed okay’, because we were being remunerated for it. If it is looking a bit wobbly now, it is not entirely out of the blue.
Solley: If you were to consider that oil was slightly lower – at, say, US$55-60 – than where it currently is, and if you were to see that for a sustained period of, say, the next 12 months, could you envisage there being more serious problems in your portfolios?
Robinson: Yes. Taking Angola as an example, I remember the floor price 10 or 15 years ago on the Sonangol PXF was US$13 a barrel, so they are resilient to low oil price, but they have taken comfort over the last decade of a continually rising oil price to put themselves in a position where, at the beginning of this year, they were in a difficult balance of payments position, essentially, at a national level. Oil has come back, to a degree, and along with what they were already doing, this has meant that the fact that it is now heading above US$50-60, and may be holding to US$70, puts them in a comfortable position, relatively speaking, from where they thought they would be.
Had it stayed as low as it was at the lowest point, that is where our market and where everybody struggles. Had it stayed at that shock low price of US$40 for a sustained period of time, the market’s books would have become distressed. To have it over a relatively short period of time – six to nine months – and to see it come back as it has done, it is probably close to the edge of what would have been difficult, but it has not delivered the volume of claims that we saw from the shocks that we saw during the global financial crisis.
Solley: Russia, in and of itself, is a massive exposure country – the biggest independent exposure, I am sure, across the market. What is the bigger concern: Russia politically, with the oil price, or the oil price more generally on a global basis?
Spears: Russia is certainly an interesting case. From an economic perspective, what has happened to Russia is that the economy will most likely decrease in size by about 5% this year. They are running a fiscal deficit of just under 4%. Putting that in perspective, compared to certain European governments, the fiscal deficit is nothing. The UK, the US, Japan and others are running very similar, if not higher, levels of fiscal deficit. The other thing about Russia is that, in terms of its external debt, it is relatively limited to its GDP. Oddly, the Russian current account has stabilised and is still in positive territory, as imports have fallen dramatically.
Russia is concerning, from my point of view, because of the political situation, and there are a host of factors that are going on: there is a clear consolidation of power, and Russia is invading other sovereign nations. My big concern is that Russia has breathing room over the medium term to adjust to lower oil prices. The question is whether Russian politicians will get things together and ensure that they start to diversify the economy. It seems to be moving in the opposite way, which is trying to consolidate around these national champions, and it is more of the same. My concern for Russia, then, is over the medium term. When you look at the statistics, it is bad but not as bad as it could be. For me, what happens to Russia in 10 years is the real concern.
Edwards: It is definitely the political angle. On the economic front, we have had quite a few risks in Russia that were already being stressed on the edge before the Ukraine crisis and the oil price drop, and they have actually improved due to the depreciation in the rouble, as a large amount of their input costs were in roubles and as exporters they are getting paid in dollars and therefore have benefited from the situation to the extent that they were on the precipice of there being a claim, but the situation has helped them and they have come out that much stronger.
Russia also has still quite a lot of breathing room in economic terms. The foreign exchange reserves were at US$500bn and are still at US$300bn – though a significant drop, the cupboard is still far from bare. The political future and direction of Russia is of far greater concern as it is this which is most likely to aggravate the economic situation in the country to a further negative degree, the situation in Ukraine has resulted in far greater claims activity in volume and quantum for ourselves on both the pure political risk and non-payment front.
Rumpeltin: I agree – everything is relative. We have not seen any problems on any of our Russia deals in the oil and gas sector. We are still writing business in the non-oil and gas sectors in Russia, and we have seen several good opportunities come to the forefront in terms of some top-tier names that we might not have seen in the past, because oil and gas names were just overtaking everything else.
Spears: If you can get comfortable with the situation, for the first time in a long time you have structures being put into these deals again. Pricing is up dramatically. We can argue about whether that price is adequate and is compensating you for the new outlook, but there are some potential opportunities for the market in Russia, which is a real shift.
Solley: If we look at Angola by comparison – so, not the same type of political issues but very quickly impacted by the oil price – do you have any comments in terms of the way that they have managed that; for example, resetting the budgets? We have had some fairly positive comments and feedback from insurers in terms of how they are handling that process. Does anybody have anything anecdotal there?
Ross: It is fairly common knowledge that they reacted quickly this time and cut their budget by 25% for 2015. They were quick off the mark, they stepped in, and they have been fairly open about cutting back on some infrastructure projects and the like. Also, they are in a much better position than they were in 2009, so, fiscally, they are better set. I am not saying that there are no issues in Angola, but the reality is that Angola has oil for many years to come and, if it manages it sensibly, so long as the output continues, ultimately they will get through it. You hear some soft rumours about renegotiation with the Chinese, which has since been denied, but from our point of view it is not a country that we are worried about.
Solley: Still open for business, but for the right counterparties. Are there things that you would not do now that you would have done 12 months ago, specifically in Angola?
Rumpeltin: We are seeing longer tenors than we have ever seen before in Angola.
Asadorian: Our view has not really changed. We have never been the most active in Sub-Saharan Africa. We have cherry-picked a few countries that we thought made sense, Angola being one, and from our perspective we are looking at risks that are primarily sovereign and infrastructure-type risks. What we appreciated with Angola was the speed with which they reacted. Since oil is such an important commodity to the economy if they had just sat there and said: ‘Let us see what we are going to do in a year or two’ that would have concerned us greatly, but they did act quickly and so from our perspective we are still open.
Ross: Where you should have more concerns is somewhere like Gabon, where they are going to run out of oil, effectively. That is a far bigger concern, because they had budgeted for a higher oil price and they are going to run out of oil; that is not what you have in Angola.
Rumpeltin: In Ghana, there is a very short history of managing oil money, unlike Angola, where they have a stabilisation fund that is vast, as well
as a track record of managing the money wisely.
Din: We are still open in Angola, probably more on the ministry of finance-backed strategic projects for multi-years.
Solley: Moving on to our last point: as the oil price readjusts slightly, are underwriters looking for new avenues for business from alternative sectors and is this materialising? Are the brokers doing enough, perhaps, to go and generate new opportunities for you? We have some self-interest here, because we are developing business which is sustainable and which is of scale. Good counterparties in emerging markets that really fit the bill for your appetite, but do you have any broader comments?
Marriage: With all market disruption events, it focuses the minds of the insureds who start looking for new risk mitigation products, so there is an opportunity for everyone. We have acknowledged that there is a lot of commodity/oil focus on the book, so a general move away from that, and risk diversification to help balance it, can only be a good thing. In terms of other things that we are open to, I would say telecoms and infrastructure projects.
Solley: Are there any particular sectors?
Edwards: It can be argued that we are in a technological revolution and this is opening up a great deal of new opportunities as such technologies move to the developing markets in which we operate. A prime example of this would be the large telecom operators that are setting up telecom infrastructure networks across Africa and the Middle East. The local obligors can often be in themselves sizeable entities and, often, there will be only one or two operators in a country, these will be government-backed or have monopoly positions and have a good track record of performance and therefore can be seen as a very solid opportunity for the market.
Ross: There is no lack of new enquiries or sectors to look at. Off the top of my head, we have real estate and shipping. Aviation will come in, perhaps, which was not around. Not just on the underwriting side but a lot of banks, now that they have achieved the buy-in for the insurance product, and mainly related to the short-term oil products, are now going wider and bringing in other opportunities. There are more opportunities but I do not know whether it has necessarily come about because of the reduction in the oil price; it is more that the product is evolving and, as a market, we are able to offer a lot more now.
Marriage: Underwriters want to diversify their book, because management have focused on the fact that there is a leaning towards the oil and commodities sectors. Equally, clients sit there and analyse their exposures, and they realise that they are getting capital relief for the product. Hopefully an event such as this will lead to an increased use of the market.
Robinson: The question you asked is whether brokers are doing enough.
I do not think it is incumbent just on the brokers to do the hard work; this is our market opportunity to really make our product a standardised, on-the-shelf product for our client base to use as a selection against other risk transfer methods. It is no longer a luxury product; it is a product that they have to buy. To do that, we have to do that in conjunction with the brokers. Educating the client base – the banks, the traders or the corporate clients – is a process that we have to do together.
To have the constant broker dialogue with those clients – because we do rely on the brokers to bring the business to us: that is how all of our business comes to us – and to combine that with an underwriter’s viewpoint to talk a little about the market, about claims and about how the products work and how we can develop products with clients is something that we have to do together. There is more that the brokers can do but, equally, there is more that the market can do, and that is both underwriters and brokers working together to really make the most of the opportunity that we have at the moment.
Solley: There is more co-operation now with ECAs and multilaterals – reinsurance, co-insurance and different structures that are being considered. Can that, for you, be the difference in doing a deal or not? Let us take an oil transaction in an African market, for example, that might be on the borderline of consideration. Would a European ECA fronting that deal and buying reinsurance, or the involvement of an African trade insurance agency or something like that, become a differentiating factor in your willingness to write transactions?
Din: It still depends on the underlying deal and whether we think that it is a good deal that will perform for the tenor. We look carefully at the cash costs and the cash models, and all the information that the insured has. We base it fully on the underlying.
Spears: In terms of our current live portfolio, the exposures are evenly split between four different types of clients: banks, traders, corporates, ECAs and multilaterals. If you look at the portfolio behind the ECAs and multilaterals, the key driver is the tenor of the transaction. We are not doing deals that we do not like. At times, we take comfort, if we are going beyond, in some cases, five years, being behind that ECA and multilateral. We do have to be aware, however, of the limitations that ECAs and multilaterals have. There is only so much that they can do to influence the situation. It does not mean that we make a full recovery or that things are automatically restructured.
Ross: What you have to bear in mind when you work with a multilateral or an ECA is that you are not going to get a commercial pricing. If they are bringing you a deal, the pricing is going to be lower than you would expect to get in the private market. If you are then going into that transaction with them, there has to be another reason to go into it. For me, from where I sit, it has to be whether they can provide leverage. Just because there is an ECA involved in the transaction, it does not make it a better transaction. What you are looking for is why the involvement of that ECA or multilateral makes this deal a better one.
From where I sit, there is no portfolio approach to it; it is very much on a risk-by-risk selection basis. On some deals, you are happy to work with someone and you think that there is a value that they are bringing to the table; on others, they are not. The reality is that, as a market, you have to be careful not to be bidding against yourself. There is very little benefit to us, as a private market, supporting an ECA on a deal that we would have done anyway, and they have driven the price down. That is not where it works with them. What we should be doing is supporting them on deals that they bring a value to. It is something that you have to be careful about.
Rumpeltin: Depending on the ECA, their reasons for getting involved with a deal may or may not be aligned with the private sector. Depending on the ECA, they are doing it for a public-policy reason as opposed to a reasonable assurance of repayment reason, and you have be careful about who you partner with on those.