Amount of Insurance Limits Being Bought Increases by 425% in One Year
SINGAPORE, July 11, 2012 (ANTARA/PRNewswire-Asia) -- European banks operating are increasingly using structured credit insurance as a way of simultaneously remaining active in Asian trade finance market and deleveraging their trade finance portfolios. As the Eurozone debt crisis combines with Basel III capital requirements to increase pressure on balance sheets, banks are looking to innovative ways to maintain market share in emerging markets, according to a new report published today by Marsh.
According to Marsh's report, Eurozone Crisis Threatens Asian Trade Finance Capacity, European banks have a significantly reduced appetite for financing trade-related deals in emerging markets, but are using structured trade credit insurance to remain active in these markets.
Structured trade credit insurance covers the risk of non-payment from a buyer for goods and services or a borrower for trade related loans. It covers transactions with a credit risk exposure of between one year to seven years, and many European jurisdictions allow banks to count it as tier one regulatory capital under Basel III rules that provide capital relief for banks.
"European banks face a choice in Asia: significantly reduce their trade finance business or use structured trade credit insurance to remain active in trade-related financing but with reduced levels of exposure," said Richard Green, Asia Leader for Marsh's Political Risk and Structured Trade Credit Practice. "Emerging markets are heavily reliant on trade financing, especially at a time when imports are critical and exports can generate much-needed foreign exchange."
"In Asia, Marsh has placed around US$450 million in insurance limits in the first half of 2012, compared with US$85 million for the same period last year – a 425% increase. The majority of transactions have been large commodity-based transactions and shipments, such as the import or export of crude oil, liquefied natural gas, palm oil and coal."
In addition, Marsh recently brokered a new $532 million trade credit policy, underwritten by nine leading insurers, for the International Finance Corporation (IFC), a member of the World Bank Group. This enabled the IFC to expand capacity under its Global Trade Finance Program (GTFP), which guarantees emerging market trade transactions.
Our Marsh Risk Management Research briefing on the increased use of structured trade credit insurance in Asia by European banks is currently available to members of the media and Marsh clients only. If you are a journalist and would like a copy, please contact william.sargent@marsh.com. If you are a Marsh client, please contact your Marsh client executive.
About Marsh
Marsh, a global leader in insurance broking and risk management, teams with its clients to define, design, and deliver innovative industry-specific solutions that help them protect their future and thrive. It has approximately 26,000 colleagues who collaborate to provide advice and transactional capabilities to clients in over 100 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 53,000 employees worldwide and annual revenue exceeding $11 billion, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; Mercer, a global leader in human resource consulting and related services; and Oliver Wyman, a global leader in management consulting. Follow Marsh on Twitter @Marsh_Inc.
Editor: PR Wire
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