New Credit Risk Program For Banks

In partnership with various insurers in the London market, ASR is now offering a comprehensive credit (or non-payment) insurance program to cover the inability of the borrower, for whatever reason, to repay monies due under a lending agreement. Credit policies are confidential in nature and provide a risk mitigation solution for financial institutions and other financiers.

Historically, credit insurance has been bought to address banks’ concerns about the credit worthiness of an obligator or its jurisdiction. While this still remains a real motivation for financial institutions purchasing this type of insurance, the incentive to purchase credit insurance has evolved to also include the following:

It allows financial institutions and exporters to offer customers larger facilities or contracts which may otherwise be curtailed by country or borrower internal limits.
Where financial institutions who wish to offer its borrowers a greater credit limit but are unable to receive internal approval.
Credit insurance can offer an alternative and often preferable solution to syndicating a lending agreement as the insurer behaves as a sub-participant, sitting behind the lender and ensuring third-party banks are unable to gain access to their client.
Banks may be able to claim regulatory capital relief by classing the policy as a Credit Risk Mitigation Technique pursuant to worldwide banking regulations.

Credit Insurance has essentially become a deal enabler for financial institutions by providing regulatory arbitrage for banks across the globe.

The Policy

Credit insurance covers a financial institution’s loss following the failure of its customer (borrower) to repay amounts owed (whether principal or interest) to the financial institution by the borrower under a lending agreement. The non-payment by the borrower under the lending agreement may be protracted default (repeated non-payment by borrower for whatever reason) or the non-payment may be caused by the borrower’s insolvency.

Usually the credit insurance policy is purchased to cover the whole life of a loan of up to seven years, however insurers can go out to 15 years for project finance transactions.

Eligible Instruments

Coverage offered on a portfolio basis or individual loans in excess of $10 million
Short to Medium Trade Finance
Structured Export Finance
Project Finance
Structured Finance including receivables finance
Revolving Credit Facilities (limited appetite from insurers)
Non-honoring of letters of credit
Portfolio of bank or corporate loans