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Meet our Experts – Interview Ger van Rosmalen
01-07-2020 | Ger van Rosmalen | treasuryXL
Our Expert Ger van Rosmalen has over 45 years of global Trade Finance expertise (Letters of Credit, Documentary Collections, Bank guarantees) mainly working for international banks. In addition, he is also frequently asked to conduct trainings for companies like EvoFenedex and Vesting Finance, as well as for Chambers of Commerce, and Professional Higher Education programs. His drive is to assist companies with Trade Finance solutions. To help companies to achieve their business objectives through a better understanding of profitable Trade Finance solutions and instruments, and to promote efficient cooperation between Sales, Finance and Logistics. Get to know him better:
We asked him 11 questions, let’s go!
1. How did your Trade Finance journey start?
My first job started 46 years ago at the Letter of Credit Department of a Dutch bank. I applied for the job of junior and when I answered the question of the HR manager “do you have bank blood?” with YES he hired me.
2. What do you like about working in Trade Finance?
Not one day, not one transaction is the same. I like to be challenged, finding solutions, be creative but always within the guidelines of compliance/AML rules. Assisting customers to close their deal. Education and training of Trade Finance solutions so customers understand the risk before signing a contract.
3. What is your Trade Finance Expertise?
I have a lot of knowledge and expertise in the field of Letters of Credit and Bank guarantees. How to apply those instruments, explain to people with different levels of Trade Finance knowledge about these products and how to be able to understand the risks and to avoid or exclude certain risks.
4. Do you have examples of risk mitigation, creation of opportunities and/or cost savings?
Risk Mitigation in Trade Finance can be the use of “confirmed” Letters of Credit, it means (if possible) that the bank of the exporter is taking over the (country/bank) risk of a foreign unknown bank. If the exporter can fulfill the conditions of the Letter of Credit his risk is his own bank. Creation of opportunities is my passion, drive and reason for being is this business for such a long time.
5. What has been your best experience in your Trade Finance career until today?
The change of UCP500 to UCP600 (Rules for Letters of Credit) was a big improvement for companies dealing with L/C’s. It is not that black and white anymore. My experience is how companies adapted to these new rules if you take them through these rules. People felt more confident in using these instruments and will be used for some time. Since UCP600 is already in force from 2007 it is expected that new rules are on their way. I hope my very best experience is yet to come when new rules will be launched. Trade has evolved and rules should adopt to that.
6. What has been your biggest challenge in Trade Finance?
My biggest challenge is every day being able to convince people to use these well established instruments.
7. What’s the most important lesson that you’ve learned as a Trade Finance expert?
To trust my instinct. Some deals are too good to be true or I just miss the logic of the transaction. My instinct has let me down only once in 46 years.
8. How have you seen the role of trade finance expert evolve over the years?
On the Sales side of the Trade Finance Expert I noticed corporates appreciate direct contact with an expert who has all the knowledge of Trade Finance from a sales perspective as well a from a operations perspective. You have become their trusted advisor in this field.
9. The coronavirus is undoubtedly an unprecedented crisis. In general, can you elaborate on the impact this virus has on Trade Finance from your perspective?
The use of Trade Finance instruments will be more important now that we are facing the Corona crisis, which will force exporters to look for other sometimes forgotten alternative solutions. High tech innovative solutions such as FinTech or Block Chain is still under construction and exporters do not have the time to investigate those solutions. They need to generate turnover and need quick available products such as Letters of Credit to support their business. I embrace those new techniques but that will not have my priority the coming period of uncertainty. People tend to say Letters of Credit are old fashioned, time consuming and too much risk. I disagree if you understand what is expected of you as exporter. If you know how to communicate with your buyer and your bank you will experience the comfort of those almost forgotten products. It is imperative that you understand and educate yourself in this field or hire experts to support you.
10. What developments do you expect in corporate trade finance in the near and further future?
It will depend on how the financial world will be able to join forces and create workable solutions. Not several small groups of banks developing their system so still fragmented but one solution workable for all parties involved in Trade Finance. If you look at the Bank Payment Obligation (BPO) it is the example how we missed the opportunity to develop one unique system. Corporates dealing with different banks and other counterparts needed several systems offered by different banks or other parties. If suppliers of the Fintech or Blockchain solutions are learning from the BPO adventure they now have the opportunity to change the world of Trade Finance significantly. Digitalisation of Trade Finance is the future whether that will be the near future or somewhere in the future is the challenge of all parties involved.
11. What is your best advice for businesses without a Trade Finance expert?
In my opinion you cannot rely on knowledge outside your company only. It will make you vulnerable. Outsourcing is not the magic word. Educate and train yourself and your staff so you understand the impact of your decisions and take responsibility.
Ger van Rosmalen
Trade Finance Specialist
Does your business need support in Trade Finance, Treasury or a Treasury QuickScan?
Alternative Risk Finance in a hardening insurance market
| 30-06-2020 | Mark Roelands | treasuryXL
Insurance premium rates are reported to increase on average with about 2% in Europe, confirming the overall market trend of a hardening insurance market. Some markets have, however, seen double-digit growth in premiums, like D&O and Motor Third Party Liability. Other markets witnessed important coverage elements actually being excluded from cover, making the premium comparison apples and pears. As Covid-19 is impacting claims experience across all lines as well as causing negative investment returns, the hardening insurance market trend is expected to continue and get worse in 2020. Premium increases are to be expected and retention levels are expected to be increased.
It is therefore critical to work with your insurance broker in time to understand and mitigate effects for the treasury and insurance function. What is the action plan when retentions are being driven upwards or when cover is disappearing? What alternatives are available next to traditional insurance? Will your organisation be forced to retain risk above the risk appetite or accept double digit premium increases?
Although retaining additional risk may not be the worst solution, as premium increases may not reflect the actual risk that is being transferred and there are awareness benefits to being exposed to risks, the possibility to transfer alternatively is very valuable in the current hardening market.
Captive insurance
A captive is an in-house insurer, enabling efficient and centralized risk pooling while providing cover to operating companies and thereby bridging the gap between corporate and local risk appetite. Key arguments for establishing a captive are to smooth the impact of hardening insurance markets as well as provide additional flexibility in cover. The current market environment is therefore a textbook example for establishing an insurance entity. However, a captive is a licensed insurance company that comes with added costs and a compliance burden. This is especially true since Solvency II became active in 2016. As a general rule of thumb a minimum threshold of captive premium of EUR 2Mio would be required for a Dutch based captive, allowing for claims expenses (70-80% claims ratio), operating costs as well as building some reserves. Establishing a captive in other jurisdictions can make sense, as the route to licensing might still be feasible in 2020 (for the Netherlands at least 6 months are to be expected) as well as the opportunity of some more light-weight operational structures.
An interesting alternative to the fully owned, traditional captive is a Cell Company; either an Incorporated Cell Company (ICC) or Protected Cell Company (PCC). These alternatives provide the benefit of a shared structure (including initial capitalisation) and enable a ring-fenced environment for your organisation. In order to arrange that ring-fencing, specific legislation is required, which is found in Malta in the EU. Guernsey (leaving tax considerations aside) might be very interesting as well. Ireland and Luxemburg did give some hints for establishing cell company legislation but after Brexit this was delayed indefinitely. A Cell Company can provide the same functionality as a fully owned captive, but treasury and insurance will have to work with legal and tax to get a solid business case in place in order to address questions proactively.
Both Aon-Willis and Marsh have Cell Companies and would be able to assist, but insurers can also facilitate this (which has a lock-in effect) while there are also more independent providers like Artex, SRS (completing the top 5 of largest captive managers 2020) and firms like Atlas or Robus which can potentially be of added value as well.
Parametric Insurance
Next to captive insurance, parametric insurance is a promising route to follow.
Parametric insurance has historically been connected to weather insurance (e.g. rainfall exceeding a threshold leading to a pay-out) as well as longevity cover for pension funds (in the form of Insurance Linked Securities, Longevity Swaps). Parametric products enable a highly transparent and quick risk transfer and enable the route to other markets than the insurance market. A parametric product can be structured in an insurance structure but in a derivative structure as well. Conceptually an insurance-linked derivative will not be different than the plain vanilla currency instruments that are traded.
Covid is also attracting significant attention for parametric cover, as lockdown measures can be clear-cut triggers for parametric cover. Most importantly, for parametric cover clear risk information and data analysis is required and both are increasingly available. Increasingly better data and analysis techniques enable to minimise basis risk i.e. the risk in which an incident occurs but the derivative trigger is not being met. For instance site-specific weather stations are set up to ensure rainfall or water level at your organisations’ sites are being monitored. Increasingly, non-weather risks are being covered, for instance Ryskex GmbH and Axis Capital have worked together to develop parametric cyber-insurance cover.
Where traditional insurance has deductibles and exclusions, parametric risk transfer has basis risk which needs to be managed. Next to that other operational processes may be impacted, claims management for instance and therefore it is recommended to make a well founded and analysed decision.
Roadmap
Starting financing risks in a different manner is not a decision to be made in isolation and to be done quickly. It is a structural decision requiring a structured approach. In our practice, we use our Risk Finance Framework which is composed of (1) Foundation, the objectives to be met (2) People & Organisation, matching the organisation, policies and people involved (3) Processes, adaptive, effective and efficient (4) Data and Technology, the business case based on solid risk information.
In our view, this provides a very practical and structured approach allowing stakeholders like tax and legal to be involved throughout the process. Back planning from a January renewal date, it is critical that conversations with your broker and insurers are taking place in order to ensure no last-minute surprises are presented as a treasury or Insurance professional. In parallel, the (internal) business case can be analysed in order to make a decision.
Therefore, it is recommended to start preparations early, or actually on an asap basis.
Alternative Risk Financing can be highly interesting, but it is not an instant go-to solution and requires some preparations.
Mark Roelands
Risk and Compliance Specialist
Crisis – What next? Immediate Measures in Cash and Liquidity Management
| 29-06-2020 | TIS |
Thursday, July 9, 2020 11:00 AM – 12:00 PM CEST
Looking at the past four months the words “Corona” and “COVID-19” surely already have become the words no.1 in 2020. Has this current status which disabled a lot of businesses and business transactions led many companies into difficult situations and troubling times?
This pandemic surely is a stress test for finance and treasury departments which have to be on top of all issues and challenges to be able to have high cash visibility and reliable liquidity forecasts. How can you fight the struggles of economic uncertainty and stay on track?
This webinar shows you which immediate measures have to be taken to stay ahead of the game. TIS and BearingPoint present a best-of-breed combination of their solutions.
Register today!