___________________________________________________________________________

2013/FMP/WKSP4/010 Session: IV

Euler Hermes - Provider of Trade Related Insurance Solutions

Submitted by: Euler Hermes

Workshop on Trade FinanceLombok, Indonesia

1 July 2013

APEC Workshop on Trade FinanceLombok, 1 July 2013

Fabrice DesnosRegional CEO APAC, Euler Hermes

Euler Hermesthe world’s leading provider of credit insurance services, helps its customers around

the globe to trade wisely and develop their business safely.

Unrivalled in its financial solidity, risk analysis and integrated global structure, the

Group provides companies of all sizes both, at home and abroad, with the support

they need to navigate the changing economic environment and successfully manage

their trade receivables.

Key figures 2012

Global leader

incredit insurance

52,000+Clients worldwide

2.4 billion EUR Consolidated turnover

20,000Credit limits requestsreceived per day

380,000Debt collectionshandled in 130 countries

6,000+ Employees worldwide

770 billion EURBusiness transactionsprotected worldwide

85%Of credit limit requestsprocessed in less than48 hours

EULER HERMES at a glance

40+ million Companies monitoredin risk database

Rated AA-by Standard &

Poor’s

EULER HERMES at a glanceJoint operator for the German Export Credit Agency

APAC Growth Markets Review / 17 April 2013© Copyright Euler Hermes© Copyright Euler Hermes 28/06/2013

Asia Pacific macro-economic potential:

Today’s world growth engine…

Nominal GDP of the top 15 countries of the regionin 2012

� APAC accounted for 45% of the world nominal GDP growth (11.500 USD bn) between 2005 and 2012.

� In 2012, the regional GDP is estimated at 22.6 USD bn(=32% of World GDP in 2012)

� Led by China, Japan, and India, the top 15 countries of the region already accounts for 31% of World GDP

Sources: IHS Global Insight, Euler Hermes

APAC Growth Markets Review / 17 April 2013© Copyright Euler Hermes

With the exception of Japan, most countries will post solid growth in the next 10 years

© Copyright Euler Hermes 28/06/2013

New Zealand

+3%

China*

+8%

India

+6%

Australia

+3%

Japan

+1%

Indonesia

+6%

Taiwan

+4%

Hong Kong

+4%

Thaïland

+4%Malaysia

+5%

Philippines

+5%

Singapore

+4%

Pakistan

+6%

*Country

Long-term GDP growth

Vietnam

+6%

South Korea

+3%

N.B: Long-term GDP growth refers to the growthaverage over the 10 next years

Sources: IHS Global Insight, Euler Hermes

Sources: IHS Global Insight, Euler Hermes

APAC expected to account for 44% of worldnominal GDP growth (17.7 USD bn) by 2020

Asia Pacific macro-economic potential:

.. And for quite some time to come

Indonesia from #6 to #4

China accounts for 40% of

APAC GDP

APAC Growth Markets Review / 17 April 2013© Copyright Euler Hermes© Copyright Euler Hermes 28/06/2013

Asia Pacific macro-economic potential:

APAC is already the second largest trade basin in the world…

� Asia-Pacific has become the second-largest trade area in terms of its share in global trade

� This performance is explained by the dynamism of ASEAN-China or ACFTA: the ACFTA has recorded the greatest growth in trade (fivefold increase) over the last 10 years

� Between 2000-12, intra regional trade increased by +450% for ASEAN + China and +280% for APAC

� Asian exports expected to grow 7 times by 2030

New Zealand

+3% / +5%

China*+8% / +8%

India

+11% / 10%

Australia

+3% / +5%

Japan

+4% / +5%

Indonesia

+7% / +7%

Taiwan

+5% / +4%

Hong Kong

+5% / +6%

Thaïland

+5% / +6%

Malaysia

+4% / +5%

Philippines

+7% / +6%

Singapore

+5% / +6%

Pakistan

+2% / +6%

*Country

Long-term export growth / Long-term export growth

Vietnam

+8% / +8%

South Korea

+7% / +6%

N.B: Long-term export (imports) growth refers to the growth average over the 10 next years

Sources: IHS Global Insight, Euler Hermes

In 2020…

External trade for top 6 (China, Japan,

India, Indonesia, SouthKorea, Australia) will be¾ of US GDP

Chinese trade will be x2

German GDP

Indian trade will be Italy

GDP

APAC macro-economic potential:

External trade is expected to continue to grow exponentially: India, China followed

by Indonesia, Vietnam and Thailand could see external trade grow by 80%+

When trading with their clients, companies have essentially three options:

� Ask for advance or upfront payment

� Ask clients to provide payment guarantees (LCs…)

� Keep exposure on their balance sheet

� Mitigate the risk of non payment using trade credit insurance or non recourse factoring

Trade Credit Insurance is a financial management tool that provides:

� Protection against unexpected bad debts which may arise from open account trading

� Access to professional expertise in the form of credit management information services

� Support to companies wishing expand their business with existing clients and into new markets

� Enable companies to leverage finance against their book of asset receivables

Trade Credit Insurance

What is Trade Credit Insurance (TCI?)

Creditinsuranceenables companiesof all sizes to tradewith confidence athome or abroad

Trade Credit Insurance

What is Trade Credit Insurance (TCI?)

’40% of a company’s assets are made up of asset receivables

Accounts receivable

Lands & Buildings

Machinery & Equipment

Inventories

Cash>25% of

insolvencies

are caused by

late payment

or customer

default.

Trade Credit InsuranceWhat is Trade Credit Insurance (TCI?)

Commercial Risk Political risk

Credit insurance: a risk mitigation tool

Pre-credit risk Credit risk

Credit insurance: enabling companies leverage financingBanks are usually beneficiaries of insurance

Seller

Bank

Buyer12

3

4

65

7

1. Seller asks for Credit Limit

2. Insurer makes an assessment of the buyer

3. Insurer issues a credit limit

4. Buyer is instructed to pay to the bank

5. Seller pledges the receivable to the bank

6. Bank extends credit

7. In case of buyer default, the insurer pays theclaim to the bank

Seller

Bank

Buyer

1

3

2

1. The seller sells invoices to the bank

2. The bank insures the invoices withCredit Insurance. Credit Insurance issues credit limits for each buyer

3. The buyer is instructed to pay theinvoices directly to the bank

Credit insurance: enabling companies leverage financingSupporting banks factoring operations

Credit insurance: supporting trade growthBerne Union statistics

Exposure - at year end

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2008 2009 2010 2011 2012

US

D M

illi

on

INV - Investment Insurance

MLT - Medium Long Term Export Credit Insurance

ST - Short Term Export Credit Insurance

219,348684,463979,2002012

200,355646,373884,1902011

193,368593,089836,5732010

145,785582,792768,8072009

145,580523,704907,6192008

INVMLTSTin USD Million

In 2012, Asia represents only 21% of total exposure

Short Term Exposure 2012 : Top 10 Countries

United States

Germany

United Kingdom

Italy

France

China

Spain

Netherlands

Brazil

Switzerland

Other

530,219Other

28,133Switzerland

28,370Brazil

31,168Netherlands

33,377Spain

41,424China

48,232France

49,112Italy

50,234United Kingdom

65,437Germany

73,495United States

All figures given in USD Million

Credit insurance: supporting trade growthBerne Union statistics – Short term exposure

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Spain

Bel

gium

Ger

man

yFr

ance

Net

herl

ands

Pola

ndIt

aly

Uni

ted

Kingd

omSw

itze

rlan

d

Ho

ng K

ong

Chin

a

East

ern

Euro

peN

ordi

cs

Sing

apore

Aust

ralia

New

Zea

lan

dJa

pan

Taiw

an

LATI

N A

mer

ica

Thai

land

Mal

aysi

aK

orea

Uni

ted

Stat

esR

ussia

Indi

aIn

don

esia

Pen

etr

ati

on

rate

- ‰

APAC countries: market penetration

Credit insurance penetration in major markets and in APACCredit insurance penetration in major markets and in APAC

APAC Growth Markets Review / 17 April 2013© Copyright Euler Hermes

APAC market challenges:2011 BCG study key findings

Low product maturity

� Credit insurance is a new product, most international credit insurers entered Asian markets only within last ten years

� Majority of prospects and companies not aware of credit insurance, substitute products such as L/C far more popular

� Specialized broker network underdeveloped,

Motivation for credit insurance mainly finance-driv en

� Asian corporates main motivation for CI is to ensure better terms and conditions for loans by banks

� CI is rarely seen as an instrument for risk mitigation as is the case in Europe and other markets

In general Asian culture tends to be more risk-taki ng

� Added value of credit insurance as risk management tool difficult to convey as compared to European markets (except for exporters and MNCs).

Credit insurance markets not fully liberalized, ECA s still prevalent especially on export markets

� Sinosure, K-Sure, NEXI, ECIC, Exim banks…

Findings based on interviewsFindings based on interviews

Common themes

across Asia

1

2

3

Source: Expert interviews

4

APAC market challenges:Asian cultures tend to be more risk taking.

Uncertainty Avoidance Index (selected examples) – Lo w score indicates openness of culture for riskUncertainty Avoidance Index (selected examples) – Lo w score indicates openness of culture for risk

364040

444648

646569

75

858692

104

Uncertainty Avoidance Index

Portugal0

South Korea

Japan France Italy Taiwan Ger-many

Thai-land

Indo-nesia

USA Philip-pines

China India Malaysia

40

80

120

Source: Geert Hofstede, Culture's Consequences – Comparing Values, Behaviors, Institutions and Organizations Across Nations

What can be done to support trade growth ?Direct measures

• Remove regulatory barriers to trade credit insurance and receivables financing, encourage competition and promote depth of commercial credit insurance market- Examples of regulatory limitations: China, India, South Korea

• Encourage positive cooperation between private and public sector (ECAs) rather than competition- European Union perspective on marketable / non marketable risks

- Experience of cooperation between private and public sector in Germany

• Consider subsidized schemes to promote access to trade insurance and trade finance- European supplementary schemes introduced during the GFC

- Examples of China, Singapore (Loan Insurance Scheme)

What can be done to support trade growth ?Indirect measures

• Establish a bankruptcy legal framework that encourages speed andtransparency in resolving insolvencies- Promoting specialized courts and professional insolvency practitioners- Effective and transparent reorganization proceedings, including specified time limits

- Protecting the rights of creditors (creditor committees, retention of title rights)

- Encouraging out of court workouts

• Promote availability and reliability of financial information- Reduce delays for financial reporting, - Central data repositories, credit reference agencies

- Robust accounting standards and corporate governance

• Education: promote trade credit insurance within business communities and understanding of risk underwriting

Thank you for your attention.