After three years of effort and many negotiations with insurers, banks, law firms and brokerage firms, ITFA has released a Basel III policy form that elevates policy terms and improves efficiency. market based on an original policy form developed by Willis Towers Watson (NASDAQ: WTW).
Trade credit insurance, which covers the risk of non-payment by borrowers and debtors of typical trade finance products and loans, has been shaped by legal changes, the Basel Accords, and capital relief. regulatory. This new form is designed to cover debt policies, but should also be seen as a solid platform for crafting compliant policies for other situations and products.
“Banks and insurers have stuck with their own negotiated form,” says Scott Ettien, executive vice president of Willis Towers Watson. “All negotiated forms are confidential, so comparison is difficult. Countless hours have been spent negotiating forms with most, if not all, landing on similar wording. These protracted negotiations are costly and time consuming and frustrate all parties, especially the bank customer who seeks favorable balance sheet treatment. In addition, the market is constrained because not all insurers accept a specifically negotiated Basel banking policy, thus limiting the levels of capacity that the bank can acquire, with their form, in the credit insurance market.
“This is the first step among many in the direction of further standardization of a Basel III trade credit policy,” adds Sean Edwards, Chairman and CEO of ITFA. “Consistency, predictability and a reliable form are essential for regulators to further recognize trade credit insurance as a viable risk transfer mechanism for capital substitution. We need all banks, insurance companies, law firms and brokers to move in the same direction if we are to develop the industry as a whole. It is difficult, if not impossible, for individual bank users, underwriters and brokers to develop a common wording that makes the role of a commercial industry such as ITFA indispensable, which can bring all parties together under one impartial roof. , and it is extremely satisfying that we have been able to provide this forum.
The project, which was led by Scott Ettien of Willis Towers Watson, (Basel III Think Tank) evolved into today’s ITFA version which involved more than 40 companies, hundreds of hours of negotiating policies and a collaborative industry effort. “I am very proud of what this group has accomplished as it is innovative and will help advance this segment of insurance as we continue to improve this policy form,” comments Ettien. The scale of many of these programs may require the allocation of capacity by several insurers. This will require a consistent policy form when syndicating an insurance placement. To be as useful as possible to banks and to achieve risk-weight substitution, a consistent form recognized by the industry is essential for predictability and speed of execution.
A joint memorandum from the two law firms, Sullivan & Worcester UK LLP and Clifford Chance, provides guidance to the reader that will help streamline the final political negotiations.
Geoffrey Wynne, Head of Trade and Export Finance at Sullivan Law Firm, and Hannah Fearn, Managing Partner, member of the team working on the project, said: “We are very pleased to have been involved in this important project which will ultimately help market participants when negotiating trade credit insurance policies. This is a very good starting point for negotiations, but of course it will take more work as the market continues to adapt and develop.
Benjamin Lee, New York partner at global law firm Clifford Chance, said: “This is a time of tremendous growth and opportunity in the credit insurance market, and we are delighted to have contributed. to this project alongside our fellow leaders in the field. that this model policy will help drive continuous innovation in the market, and we look forward to what lies ahead. “
Sean Edwards, ITFA CEO, added: “We hope this project and this release will trigger a further push in that direction. Our ultimate goal of consistency, transparency and predictability for a Basel waiver form should garner support from regulators as we work together to align all parties to develop this particular segment of the insurance industry. ”