Felipe Escallon Angel
Vice President, Private Equity and M&A (PEMA)
Amidst a difficult macroeconomic environment, businesses are shifting their priorities and focusing on expanding their sales and optimizing working capital, allowing them to make decisions required to maximize their capital and to fuel growth.
Fund managers and portfolio companies are seeking to free capital to overcome investment challenges at a time when borrowing has become more difficult and cash is king. You need knowledge and experience to help you transform your existing risks into possibilities and identify the solutions that best fit your capital needs. And since no two companies have the same risks, you need tailored credit solutions that meet your strategic growth objectives, allowing for a fully customized credit insurance program.
Marsh’s team of specialists within our Private Equity Mergers & Acquisitions (PEMA) and Credit Specialties groups have deep knowledge and experience that allows us to understand the risk and capital challenges that companies like yours are facing. We can help you identify your specific risks and work with you to create an insurance program that is tailored to your risk profile. Our specialists will provide insights and support to help you manage your structured credit decisions for domestic and cross-border transactions, leveraging insurance risk capital to optimize results.
Whether you are a financial institution or a corporation, we can help you choose a suitable policy to cover your risks and help safeguard your business.
Our vast suite of solutions includes the following four products that are most sought by businesses looking to mitigate their risk exposure and maximize their returns and capital:
As global trade becomes more challenging, businesses face an increased risk of customer insolvency or default. Trade credit insurance (TCI) can help you protect your balance sheet and grow your sales by providing coverage for potential non-payment of your underlying trade flow — whether a payable or a receivable — due to insolvency, protracted default, or political risk.
Trade credit insurance is typically used by sponsors and portfolio companies to enhance financing and support sales growth by offering more competitive sales terms. It may also help you obtain more information about the creditworthiness of counterparties, becoming a cost-effective risk transfer tool by freeing collateral for uninsured sales.
Trade credit insurance can help enhance your financing programs by providing borrowers with more assets that they can place into the financing structure, better pricing, and the potential of obtaining off-balance sheet benefits to improve financial metrics.
This coverage helps secure payment for any nonpaid invoice (typically providing up to 95% indemnity), whether due to buyer insolvency, protracted buyer default, or political risks. It can also help professionally manage buyer credit and client profiles. Trade credit insurance can also improve capital efficiency on self-insurance loss reserves held on the seller’s balance sheet.
The policy is specifically targeted to clients with a high proportion of assets being accounts receivables. It can help corporations looking for ways to improve cash flow — by insuring accounts receivable, you may be able to unlock bank lending against insured debtor accounts or sell these assets to a bank on a non-recourse basis.
Geopolitical conflicts and unrest can create significant challenges for organizations doing business in an affected region or for those that have assets, contracts, or investments in impacted areas. Political risk insurance (PRI) can help indemnify your business in the case of government actions that lead to significant monetary losses.
A political risk insurance (PRI) policy serves to indemnify institutional investors, businesses, or financial institutions from government actions that lead to significant monetary losses. It is typically purchased in relation to project finance, asset finance, trade finance, fixed and mobile assets, and foreign direct investment. This policy is typically purchased by companies operating in the oil and gas, mining, and infrastructure sectors in emerging markets.
PRI typically covers loss of international investments as a result of multiple challenges, including:
Seizure of control by a government
Forced abandonment of assets due to war
Physical damage due to war
Blockage of dividend remittances from being returned to an investor
Default by a foreign government on a contract, such as an offtake agreement
Our team of specialists can work with you to understand your specific risks and help you customize your PRI policy.
A PRI policy can cover both existing assets or new projects in jurisdictions that are perceived to be less stable. The protection provided by a PRI policy can enhance the rating and value of your assets, increasing their attractiveness when you decide to sell. It can help risk-averse investors become more comfortable with certain investments, such as pension funds or insurance companies. Aside from compensation for covered events that can catastrophically impair your investment and cash flow, PRI enhances your investments’ valuation and internal rate of return (IRR).
While organizations across all industries whose operations could be impacted by political risk may benefit from PRI, this is especially applicable for infrastructure and power companies, including renewable energy owners and developers, and manufacturing businesses.
Difficult economic circumstances may increase the risk of borrowers failing or refusing to pay an amount due under an insured loan obligation. Non-payment insurance (NPI) can provide protection non-payment by a borrower on a loan or other form of credit, whether short, medium, or long term.
NPI can help lenders reduce credit exposure for specific creditors or for an entire portfolio. Our team of specialists will discuss your concerns and provide options for you to reduce your risks, depending on the concentration that is of most concern. It may also help you retain borrower relationships that are at risk of being lost to competitors.
Further, as a recognized credit risk mitigation technique under the Basel III framework, NPI can yield regulatory capital relief for banks and help them manage capital more efficiently.
NPI is typically purchased for a single deal, but it is possible to transfer risk on certain segments or tranches of risk through portfolio solutions. NPI can also be used to enhance the credit rating of a pool of risk.
Direct (non-bank) lenders may also use NPI for their own accounts to insure project finance, accounts receivables funds, asset-backed finance, aircraft finance, corporate lending, and others.
Having available cash is critical to allow organizations to operate efficiently. Surety guarantees, included bank-fronted solutions, can help you free up cash or preserve bank capacity. Bank-fronted surety can replace letters of credit on large deductible plans and are used as security against the risk of non-payment. They can also replace bank guarantees insuring performance obligations.
This solution can help improve your working capital and liquidity ratios. You can use your surety limits rather than bank lines to increase available cash. You may also be able to secure comparable or more competitive pricing than a standard bank guarantee by leveraging the financial strength of highly rated insurance companies.
This solution is specifically targeted to large firms with substantial compulsory liability insurance policies. Infrastructure firms and energy companies that have big performance obligations with standard letter of credit or other bank guarantee mechanisms may benefit from a bank-fronted surety solution.
As they seek to invest in strategic growth, companies need the peace of mind of knowing that they are adequately transferring their risks. Our solutions can be tailored to your company’s individual needs to help you build the most effective risk transfer program.
There are different timelines for each solution, but we are typically able to provide trade credit insurance coverage within two weeks and bank fronting surety between four to six weeks. While it may take between 8 and 12 weeks to secure coverage for political risk and non-payment insurance, we can provide indications of availability and cost between seven and 10 business days.
Required information varies according to the solution. Our team of specialists can provide you with a list of the needed details and help you compile the information in your coverage application.
Our specialist teams within both our Private Equity Mergers and Acquisition (PEMA) and Credit Specialties groups have the knowledge and experience to help you find the best solutions for your risks and tailor them to your exact circumstances.
Vice President, Private Equity and M&A (PEMA)
Vice President, Structured Credit & Political Risk, Marsh Specialty
Managing Director, Credit Specialties
Managing Director, International Surety Leader