In an ever-changing global marketplace, territories can appear stable one day and then unexpectedly be faced with political tension. Political or economic instability is unpredictable and we have seen an increase in this in recent years.
Often the most attractive growth opportunities for banks, traders, corporates and investors can be in territories where political and economic instability is less foreseeable.
When contracting with governments ‘in emerging markets’ - whether in the form of a payment obligation for goods/services provided, reimbursement of a prepayment or the repayment of a loan/honouring of another financial instrument, there is a risk that they will fail to observe agreed contractual terms. This is also the case when contracting through state-owned counterparties.
Our diverse, global and creative team of specialists works as your agent and problem solver to overcome concerns or challenges, and work out a strategy to leverage your business volumes. We can help to protect clients suffering from losses resulting from any combination of the risks mentioned above on individual or groups of transactions.
We believe insurance contributes to the growth of your business as well as providing crucial protection in unstable circumstances. We find opportunities where others see challenges. Our entrepreneurial culture and exclusive analytical ability helps clients to identify and realise opportunity in volatility.
WHAT WE DO
We work with international insurance markets to offer contract frustration insurance to our global clients. This protects them against the non-payment or non-performance by the government/state owned counterparty.
Cover is for non-payment for any reason and the policy is designed to respond where there has been a financial loss due to the counterparty failing to meet contractual obligations.
Our clients find that contract frustration insurance can be a more cost effective means of risk distribution than other available options, and assist them with internal constraints on country and counterparty limits. Our global clients also benefit from reduced capital allocation as policy wordings meet Basel II requirements.
Our creative and specialist team has worked extensively with clients to manage and mitigate state-owned counterparty risk. We ensure policy wordings are bespoke, tailored to each insured’s individual requirements and in accordance with the underlying contract.
What information is required to go to the market to consider initial discussions for contract frustration insurance?
We can provide you a proposal form to complete which we can then take to the market.
Alternatively, we may request:
details of the counterparty
contract terms and conditions
information about insured goods/services
law and jurisdiction
experience you have had with the counterparty.
For short term trade credit insurance multi-buyer policies we ideally need a list of all customers, credit limit requirements, annual sales and payment terms.
For payment default by the obligor, what do I need to provide as proof of loss?
There are some standard template proof of loss forms which are usually included as an appendix in a policy. If your policy has one of these, then this will need to be filled out and submitted to JLT.
If no proof of loss form is included, then the provision of proof of loss will need to include the following:
written confirmation by the insured that there has been a default under the insured transaction (email is sufficient)
proof that you have taken measures to retrieve the overdue payment from the obligor such as copies of emails or letters chasing for payment
summary of action taken by the insured to pursue payment from obligor
supporting documents – contracts, correspondence concerning activity to mitigate loss.
In addition to the above there may further information relating to the insured transaction that is requested by underwriters in order to process the claim. This will vary depending on the specifics of the policy wording.
Clients wishing to purchase insurance for contract frustration risks need to ensure that they select a broker with the relevant skills, knowledge and expertise in their business sector.
We believe insurance contributes to the growth of your business as well as providing crucial protection in challenging circumstances.
We find opportunities where others see challenges. Our entrepreneurial culture and exclusive analytical ability helps clients to identify and realise opportunity in volatility.
Our multilingual team handle broking services for clients globally including many of the world’s leading corporations, financial institutions and government/multilateral agencies.
As a CPS client you will benefit from:
access to a diverse global team to deliver creative, comprehensive risk and insurance solutions which facilitate growth, reduce capital costs, improve returns, secure people and assets
ideas and products that positively impact risk mitigation and risk transfer strategies allowing you to make business decisions with confidence
our ability to create capacity to underwrite new and evolving risks
proprietary analytical tools to ensure you have access to complete and accurate real-time information which enables fact based decision making
experienced resources available where you need them without hierarchical, geography or financial barriers
consistent engagement through advisory, structuring, placement and claims, drawing in management leverage and technical expertise to ensure that when losses do occur we maximise recovery and minimise the impact on your operations.
Contract Frustration Policy
A bank insured wants to provide a loan to their client, a state-owned oil company, whose main activities are crude oil production, refining and marketing of oil products. The loan is to be secured against future receivables (future production from existing assets) over a period of three years. Despite a good track record over many years, the insured is facing internal aggregation restrictions to this client.
Given the existing relationship and pressure from competing banks, the insured is reluctant to decline the financing opportunity. They are keen to proceed as it is a good commercial opportunity.
The insured needs a solution that would provide the bank’s credit committee comfort they could disburse the loan without incurring additional exposure to this client.
We structured and negotiated a contract frustration insurance policy with leading AA rated insurers, allowing the insured to mitigate the risk of default for up to 95% of the value of the loan. The insured was therefore able to proceed – the insured’s client had no knowledge of any internal aggregation issue the bank was facing.
We deliver results. We deploy all resources to help resolve complex losses and deliver claim payments. Our track record is unblemished.
Our clients have confidence that the insurance policies we arrange for them are expertly structured and written by experienced insurers with strong track records in paying claims. Our approachable brokers work alongside our meticulous CPS claims professionals who specialise in handling, managing and negotiating claims.
In the unfortunate event of a loss:
You would have a single point of contact with overall accountability for all losses wherever they occur
Our proactive claims handling process would help maximise your recovery under your programme, while minimising the intrusion and interference to your on-going operations
We would leverage our strong relationships with the major leaders, loss adjusters and lawyers to help expedite the claims process
You would have access to our sophisticated pre-loss consulting and effective post-loss recovery services.
Our starting point when structuring a new policy is to precisely understand your needs. Our brokers sit alongside a team of risk analysts drawn from security, technical and academic backgrounds.
Their substantial knowledge is utilised to help us understand the precise nature of your risk profile, thereby assisting us in determining the right insurance solution for your requirements.
Using ground-breaking modelling and rating tools, such as Sunstone and World Risk Review, our analysts can pinpoint risks, map exposures, analyse the risk triggers, and evaluate probable maximum loss (PML) ratios across a portfolio of assets.