Borrower and guarantor default
Leading banks primarily in Europe now view and use the private Political Risk and Credit Insurance market as an alternative risk distribution market having some significant advantages over bank syndications such as (1) cost and (2) not having to reveal sensitive information to a potential competitor as is frequently the case in the secondary bank market.
Banks use the insurance market to cover borrower and guarantor default across a wide variety of transactions including:
- Commodity finance
- Transactional credit facilities for traders
- Traders’ revolving credit facilities
- Silent guarantees
- Structured commodity finance
- Pre-export financing facilities
- Borrowing base facilities (BBF)
- Reserve Based Lending (RBL)
- Working capital loans
- Mining finance
- Shipping finance
- Project finance
- Supply chain finance
- Financial Institution risks
- Documentary Credits, Letters of Credit, Guarantees and Stand-by Letters of Credit
- Various form of bank to bank loans including “SWIFT” loans.
The majority of IRIA’s business in Financial Institution risks is transacted on RK Harrison’s web-based insurance platform "TEPFIN"
Capacity for unsecured loans to private borrowers is much tighter than for trade-related secured loans.
With respect to tenors, the market can support up to 10 years on government obligors (CF) and up to 7 years on private obligors (CR).
With respect to pricing, premium rates will typically be a percentage of the insured’s margin. A rule of thumb would be 70% of the margin on the insured portion.