Euler Hermes 2012


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Euler Hermes Trade Credit Informational Presentation

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  • READ Credit Management Tool Like any other asset, accounts receivable requires safeguards, including sound credit management practices and insurance protection. History of CI – 1890 is when it started. 1960- Ex-Im bank, government involvement 1990-
  • - One of my favorite slides, usually when I am talking with someone they will point and say yah I took a hit on that one or yep we were surprised by this one. Each of these companies are household names yet have for one reason or another filed bankruptcy in the recent past……… - There is no such thing as we only sell to the best accounts and therefore we have no risk……tell that to the creditors of Enron, who’s the next one cooking the books or Owens corning, where's the next asbestos situation - The other problem is that when accounts of this size go down or any account for that matter, there is a ‘cash flow wheel domino effect'. when K-mart filed it affected an est. $4 billion in cash flow…forced companies like Fleming to file and when Fleming and their 29 subsidiaries filed it forced others and so on and so on. You may be doing your due diligence with your key accounts but how can you know what is going on down stream with you key accounts’ key accounts? (Next Slide)
  • READ Risks are Rated The first thing we do with a prospect’s list of buyers is assign risk Ratings to each of your customers. The “risk rating Scale’ goes from 1 to 10 with the Walmart’s of the world being1’s and completely dead companies (chapter 7’s0 being 10’s. Companies with RR’s of 8 & 9 have either filed formal Chapter 11’s or are in similar conditions but without the formal filings……….we don’t approve buyers with RR of 8 thru 10. The 6’s & 7’s are the “very difficult buyers” which make up the majority of the portfolio which produces most of the loss payments to insureds. While the last sentence is a mouthful (and I’m not certain to be 100% grammatically correct), what I am basically saying is that “6’s & 7’s” are the buyers that default most often by a very large margin. We make the world’s best credit decisions …..allowing our Generacs to make the world’s best business decisions. Policy is Dynamic Policy Payout
  • Waterfall view of timeline
  • Euler Hermes 2012

    1. 1. Name Phone eulerhermes.usEuler Hermes Americas Credit Insurance Overview
    2. 2. Euler Hermes Americas119 years of experience, with a AA- S&P Rating and an A+ rating from AM BestHeadquartered in Baltimore, MD, backed by blue-chip ownership through the AllianzGroupStaff of 6,000 associates world wide provides localized sales and servicing, with over 50local offices nationwide and in 52 countriesGuarantee over $120 Billion in sales annuallyProvides coverage in over 200 foreign marketsOver 52,000 Policyholders worldwideIndustry based experts in risk underwriting provide customized analysis and support to ourclientsInternational Risk Database monitors & grades over 45 million companies worldwide © Copyright 2
    3. 3. Loss Protection and PreventionProtection against unexpected bad debt losses due toInsolvency, slow pay or political risk.Insolvency can be a Ch. 7, 11, 13, bulk sale, receivership, general meeting ofcreditors, etc.Everything else falls into the slow pay “bucket”.  Slow pay claims must be filed within 90 days from due date or 180 days from ship date, whichever is longer.  We act as collection company with the guarantee…if we don’t collect we pay.  If we collect debt then the business is assessed a collection fee however, deductible or coinsurance do not apply. © Copyright 3
    4. 4. Business Credit InsuranceIndemnifies policyholder against unforeseen bad debt losses due tocommercial and/or political risks.Part of Sound Risk Management Strategy Manage Expected Risk Manage Unexpected Risk GOOD DECISIONS Information PROTECTION Your Credit Expertise Insurance Self-insuranceCompanies use credit insurance for four primary reasonsCatastrophic Risk ProtectionSales ExpansionBank FinancingGeneral Loss Prevention © Copyright 4
    5. 5. Business Credit InsuranceCatastrophic Risk Protection Prevents Disruption of Losses to one of company’s largest, unprotected assets Reduction of Risk of Key Account concentration levels Caps Exposure to Bad Debt LossSales Expansion Expand Sales into Riskier or New Markets Grow with Existing Accounts Enhance a Customer RelationshipGeneral Loss Prevention Support for Credit Risk Evaluation through third party evaluations of customers, prospects, industries and countries Provides a structure and discipline for credit decision making Gain leverage over problem accounts by using underwriter’s clout and resourcesBank Financing Enhance Lending Relationship...  High Concentration with Key Accounts  ‘Cross-Aging Language’ on A/R  Borrowing against Export Receivables  More capital at reduced rates, taking full advantage of A/R Reduction in Bad Debt Reserves  Frees up Working Capital  Converts non-taxable deductible provisions into a fully tax deductible insurance premium © Copyright 5
    6. 6. Export CoverageCan provide an organization with increased sales, cost savings andprotection from unexpected lossesEliminates… Need for Letters of Credit  Covers shipments for the year  Open terms allows the buyer to keep their working capital line of credit available for other usesBorrow… Export Receivables are no longer non-performing assets, but maybecome recognized collateral that can open up opportunities for better financingCompetitive Edge … Offering open terms may be the difference in winning thebusiness from competitorsPolitical Risk… Export protection against  Inability to obtain hard currency  Changes in Import/Export regulations  Contract frustration due to Act of War  Foreign government non-payment © Copyright 6
    7. 7. Accounts Receivable –The Only Major Asset Left UninsuredWhat assets are insurable andinsured?There is a greater chance that a business will experience a loss within their accountsreceivable than any other asset.Where does the A/R fall on a client’sBalance Sheet?Typically represents 40% of a company’s assetsMost vulnerable to unexpected lossesHighly likely to be affected by business cyclesProvides cash flow for the businessOnly under-leveraged assetFew companies can effectively compete without extending credit to their buyersWhat amount of loss would seriouslyimpact a company’s financial stability orannual profit? How many accountshave credit extended over that limit? © Copyright 7
    8. 8. “My Accounts Are As Good as Gold…?” ??? 8© Copyright 8
    9. 9. Understanding How to Structure YOUR PolicyWhere’s the Risk?Domestic, Export, Catastrophic coverage Portfolio Coverage (Full A/R) Tier Coverage (Logical & consistent segmentation) -  Key Account, Export Only, 2nd tier, etc.; (Can’t be defined as “ only the accounts a business is worried about”) Appetite for RiskEstablish Premium Rate Based on policy type, buyer and industry risk, term Rate is quoted on percentage of sales basisRisk Sharing Aggregate first loss (deductible), Non-Qualifying Loss (NQL), CoinsuranceSet Credit Limits Underwrite large, named credit limits (Risks are Rated) Arrange Discretionary Credit Limit (DCL)Policy is DynamicPolicy Payout - Insolvency vs. Slow Pay © Copyright 9
    10. 10. Policy Examples Portfolio Coverage Key Account Coverage Foundry Materials Supplier Graphics Printing Company Est. Sales Volume - $40 MM Est. Sales Volume - $13 MM Policy Structure Policy Structure Key Accounts Key Accounts (Largest Exposure)  56 accounts for $27 MM (68%)  18 accounts for $9 MM (69%) Discretionary Credit Limit (DCL) Coinsurance  $25,000 per account Key Accounts - 10% (90% Indemnity)  Aggregate of $100,000 Unnamed DCL- n/a Coinsurance Policy Deductible - $0 Key Accounts - 10% (90% Indemnity) Non-Qualifying Loss (NQL) - $5,000 Unnamed DCL- 10% (90% Indemnity) ‘Sample’ Policy Premium Range Policy Deductible - $25,000 $0.25/$100 Sales - $0.33/$100 Sales Non-Qualifying Loss (NQL) - $5,000 (9,000,000/100 * 0.25 = 22,500) (9,000,000/100 * 0.33 = 29,700) ‘Sample’ Policy Premium Range $0.17/$100 Sales - $0.22/$100 Sales $22,500 - $29,700 Premium (40,000,000/100 * 0.17 = 68,000) (40,000,000/100 * 0.22 = 88,000) $68,000 - $88,000 Premium © Copyright 10
    11. 11. Sales ExpansionOperating FactsTypical Company with $120 Million in SalesAverage A/R: $15 Million,Gross Margin: 10%Account Turns Per Year: 8ObjectiveCompany has a few large/new accounts that offer additional selling opportunities but had reached their“comfort” exposure level. Interested in a credit risk protection program that would allow to safelyincrease sales. Profit/Payout (on just ONE approved account) "Comfort" Exposure $750,000 Approved Coverage $1,000,000 Sales Opportunity $250,000 By Account Turns 8 Incremental Annual Revenue $2,000,000 By Gross margin percent 10% Increased Gross Profit $200,000 © Copyright 11
    12. 12. Return On Your InvestmentHow can you protect your business and safely expand sales? Average AR $1,000,000.00 Annual Credit Sales $12,000,000.00 Gross Margin 20% Total # of Credit Customers 10 Average Credit Limit $100,000 Length of Terms 30 Turns in Year 12 Cost of Program $24,000.00 ROI sales $120,000.00 Average Customers Needed for ROI 1.2 Premium Rate 0.002 New Sales $500,000.00 Gross Margin 20.00% Premium Cost $24,000.00 Return on Investment $76,000.00 © Copyright 12
    13. 13. EOLIS Online Database 45 Million Companies Monitored and graded in our worldwide risk database 2,000 debtors Processed on-line each day 17,000 Credit Limit Requests Received each day 81% of Credit Limit Requests Processed in less than 48 hours Credit Limit Request Turnaround Time Domestic: 1 day (95%) Exports: 4-7 days (95%) © Copyright 13
    14. 14. Borrowing Enhancements Enabled by CreditInsuranceAdvance Rates - Puts a “Hard Cap” on potential bad debt losses - Reduces overall inherent risk in pledged receivables - May allow the bank to meet client’s need for additional working capitalEligibility - Reduce risks of “concentration” issues & any “slow pay” issues - Offer competitively price funding due to reduced risk of A/RUnderwriting Support - Euler Hermes ACI underwriting assumes responsibility to review, approve and monitor your client’s insured account base  Explicit “Limits-Underwriter”  No credit due-diligence except for severe delinquent notificationInclude Export A/R in Borrowing BasePolicy Assignment - Policy could be assigned to the Bank, providing the same rights as the client under the terms of the policy. © Copyright 14
    15. 15. Effect of Bad Debt LossThe table shows the amount of sales required to cover a bad debt loss, i.e., $50,000 debt @ 4%Profit Margin means you have to gain $1,250,000 to BREAK EVEN. Profit Margin $25,000 $50,000 $100,000 $250,000 $500,000 $1,000,000 2% $1,250,000 $2,500,000 $5,000,000 $12,500,000 $25,000,000 $50,000,000 4% $625,000 $1,250,000 $2,500,000 $6,250,000 $12,500,000 $25,000,000 6% $416,667 $833,333 $1,666,667 $4,166,667 $8,333,333 $16,666,667 8% $312,500 $625,000 $1,250,000 $3,125,000 $6,250,000 $12,500,000 10% $250,000 $500,000 $1,000,000 $2,500,000 $5,000,000 $10,000,000 15% $166,667 $333,333 $666,667 $1,666,667 $3,333,333 $6,666,667 © Copyright 15
    16. 16. Euler Hermes Americas: Benefits Summary Service Company First, Insurance Company SecondProtects against large credit losses.Provides increasing borrowing and purchasing power.Reduce your bad debt reserve.Credit Management Tool – Provides key account monitoring, and back-up support and assistance to your existing credit function.Allows for safe sales expansion into new and existing markets.Accommodates profitable cooperation between your sales and creditfunctions.Provides effective collection and account resolution assistance.Allows you to convert non-tax deductible provisions for bad debt lossesinto fully tax deductible credit insurance premiums. © Copyright 16
    17. 17. Timeline for Application & Acceptance Process • Together review coverage request Insurance • Account review summary Policy • Sales and loss history Application1 • In-depth evaluation by regional specialists Underwriting • Premiums and limits set Research and Corroboration 2 Review • Q&A session Updated • Evaluation and review Policy and Proposal 3 • Company officer’s acceptance •Performed by Policy Euler Hermes ACI Acceptance •Protection against bad debt losses 4 •Pre-Approval coverage on large Coverage accounts •Performed by Enforced Company 5 •Sales expansion to existing accounts •Borrowing enhancement •Catastrophic loss protection •Performed Together Order Fulfillment, • Account monitoring 6 Sales Expansion Partners and joint review • Shared responsibility in Credit Management 7 © Copyright 17
    18. 18. As you would expect from the largest credit insurer in the world, Euler Hermes hasTHE best credit department in the world because we are out of business if we don’t.And guess what, we use credit insurance too, via re-insurance.Why…because like (our customers and) your customers, we want to grow ourbusiness by taking on new clients and risk. But no matter how good we are at creditdecisions, we can’t stop bankruptcies and losses from occurring.We hate writing those premium checks just like any other business but we continueto do so because we’ve realized over 117 years of business that no matter how goodwe are, surprises happen. Joe Ketzner We thank you for the opportunity to present our company and our services. We look forward to becoming a trusted and important resource.