The ICISA Insider - June 2022 by Secretariat-ICISA

The ICISA INSIDER Newsletter of the International Credit Insurance & Surety Association (ICISA) Volume 17 | June 2022

The ICISA INSIDER | June 2022

10 | The Zero-Covid policy is the main uncertainty behind China’s outlook By Hugh Burke

INSIGHTS 12 | Implications for credit insurance from Russian invasion of Ukraine Insight by John Owen

14 | Talent - the uninsurable risk? Insight by Olfertjan Niemeijer

16 | Production and financial networks: a new kind of monitoring tools in an era of financial vulnerability Insight by Melina London 22 | How credit insurers and sureties can benefit from the Global LEI System Insight by Gerard Hartsink INTERVIEW

20 | ICISA Welcomes DevK Re as a new member Interview with Renate Kerpen ANNOUNCEMENTS

The ICISA INSIDER | How to get a free Subscription? If you would like to be added to the distribution list of The ICISA Insider, please send a message to secretariat@icisa.org

Editorial Information | For suggestions and announcements, please contact: Raluca Ezaru (editor) Raluca.Ezaru@icisa.org

+31 (0)20 625 4115 1

| Foreword June 2022 | |The ICISA INSIDER The ICISA INSIDER | Foreword

Foreword

The ICISA INSIDER | June 2022

Foreword

Dear Reader, Welcome to the Summer Edition of the ICISA Insider! Looking back at the past few weeks, two important industry events took place: our own AGM Week and the AON Conference. I’m sure I’m not alone in saying that getting to meet so many familiar faces again was fantastic. ICISA AGM week, which took place in Helsinki, Finland, gave us plenty of good energy, ideas and initiatives to progress in the months ahead. Lots of interesting and important topics were discussed throughout the week and you can read the summaries prepared by our Committee Chairs later in the Insider. A topic that was covered in detail was the implications of the ongoing tragedy of the war in Ukraine. This topic will no doubt be with us for some time, as well as its impact on wider economic issues as we slowly emerge from Covid-19. And it is covered in this edition of the Insider too: John Owen shared his thoughts on the impact and implications of the war on credit insurance industry (page 12), while Mélina London explains how businesses can address their vulnerability to shocks and improve their resilience in the face of the various challenges seen today (page 16). Also in this Insider is an article of practical use about the Legal Entity Identifier developed by the International Organization for Standards, and how it can add value to insurance business processes by unambigously establishing the identity of a corporate (page 22), as well as an article about attracting and retaining talent in the credit and surety industries (page 14). The previous six months were busy at our Secretariat, making us energised by seeing the enthusiasm of our members in Helsinki. We’re looking forward even more now to the next six months of 2022 (and summer holidays in between of course)! After the success of Surety Week in February, we have Trade Credit Insurance Week ahead of us in September. We hope this will once again bring together the significant expertise within our industry, as well as opening up the sector to the outside world. We hope you’ll enjoy this edition as much as we enjoyed putting it together. Happy reading! Richard Wulff

June 2022 | The ICISA INSIDER

| Column

Great to see you again! Column by Jan Mueller, Hannover Re

Being in Helsinki with ICISA, as well as a number of other conferences and in-person meetings with clients recently, one could sense that people in our industry are very happy to see each other again. As happy as we were to be able to transact business virtually over the last 2 years (a luxury compared to some other industries), we are excited now to be able to talk personally again.

things are among many other aspects necessary to constantly develop the culture in our companies. The famous slogan, “culture eats strategy for breakfast”, continues to be true. It remains important that culture reflects the needs & desires of the time we are living in and is instrumental to economic success. Without such economic success, no culture would be perceived as something positive, per se.

No doubt we discovered significant advantages/efficiency gains in working virtually. We saved on travel and commuting time certainly and were able to spending much more time at home than ever before. On the other side, we recognised that the density of meetings went sharply up and the days hardly showed any rhythm change, which relativised the appeal of pure virtual exchanges to some extent. Overall, I think we learned to deal with the situation and to know when a virtual meeting is suitable and when it is maybe not the best option.

Going forward, I am very optimistic that we will find the right answers in our industry to the opportunities and challenges ahead and that a good mix of virtual and in-person communication among market participants and within our teams will contribute to this.

When we came back to meetings in person, we realised that sitting next to colleagues or clients in an office, airport, train, plane etc. comes with great advantages and its own efficiencies. Spending time with each other and not following a fixed agenda gives opportunities to cover many topics at the same time and possibilities to listen to and learn from each other. At the end of the day, this is one of the main preconditions to finding good solutions with your clients and within your teams, to develop good relationships, and probably most important, to create mutual trust. In addition, spending time together in person clearly helps to form teams, integrate new staff members and challenge leadership (or as Mads Logstrup called it in the last ICISA Insider: “the old hands”) in their established views. These

One thing I already know, I am looking forward to seeing you all again on the next occasion…in person and virtually!

Don’t miss the Autumn edition of the Insider Magazine! Charles Nortje from Credit Guarantee Insurance Corporation (CGIC) will be the next columnist!

Committee Updates | The ICISA INSIDER | June 2022 The ICISA INSIDER | June 2022

Update Committee Chairs Surety Committee Nils Hoppenworth

Nils Hoppenworth Chair of the Surety Committee Company: Liberty Mutual First of all I want to express my gratitude to the members giving me the chance to chair up the surety committee of ICISA. As the economic and geopolitical environment has hit our industry we have been put in a new situation where many aspects in risk underwriting need to be taken into account. Therefore my goal is to use the surety committee as a good platform to discuss matters around risks and opportunities. Certainly we would like to involve many of the involved stakeholders in surety bonding to get a good understanding where we as an industry should approach issues whether they are positive or negative. With open and constant discussions we should be able to draw a roadmap with priorities in our industry and which is of interest for ICISA members and beyond. Thus we would use the transition phase of ICISA’s appearance to make use of the new technology to make use for more stakeholders as well. As a result we would get to a level that standards from ICISA can be set - i.e. definition of financial guarantee, evaluation of new bond types, etc.

Change in general brings progress and evolution. As ever surety has always played a pivotal role in the financing structure of corporates and has made always efforts to adapt to economic circumstances as well as regulatoric environment. The innovative spirit has made always a difference such as engaging and lobbying with key partners such as governments, regulators or supervisors. The ICISA surety committee should be seen as a great underwriting exchange platform to tackle issues, concerns and set sails for market approaches with various advices. Communication is key and be agile for all upcoming storms and obstacles which might be in the way. Looking forward to taking up the role and progressing on initiatives or projects which bring solutions!

June 2022 | |The ICISA INSIDER The ICISA INSIDER | Committee Updates

Update Committee Chairs

Committee of Underwriters Fabrice Nessi

Fabrice Nessi Chair of Committee of Underwriters Company: Partner Re With 20+ attendees, the Helsinki meeting focused on boiling down the many major macroeconomic topics, such as: Russian crisis fallouts, ESG risks in the medium term, potential implications for China-Taiwan tensions, inflation as the enemy of growth, and some other supply chain issues such as the German dependency on foreign fossils. While it has been relatively easy for members to reduce Russian-related exposures, there are political implications that limit possibilities for entities with interests in Russia (RUB appreciation also does not help). Another problem lies in the quality and delay in receiving available data. Meanwhile, the impact on claims is likely to be minimal as market players are intent on investing in long-term relationships. The crisis would likely be of another magnitude if we were to see a direct confrontation between China and Taiwan, leading to the end of peace-for-trade worldwide agreements. While regressive, complex to implement, and particularly tough on developing countries, the “Friendshoring” concept could have a future, where trade is refocused towards friendly partners. For the first time in a long time, 2022 will be the first year during which global trade grows slower than the GDP. Of interest for our trade credit industry, the resurgence of inventories could change balance sheet dynamics.

As part of our committee, we had the opportunity to meet with Resilience, a software and analytics company that is attempting to quantify the business impact of climate change to any given organization. According to their experience, regulatory, market, reputational, liability and technological risks, for the most part, precede the real physical risk impacting facilities and materials. While the concept of an ESG rating of buyers / obligors is already integrated on the asset side (somewhat limited on the liability side, mainly due to reputational issues), most members feel there is still a long way to go. Organizations are facing the usual dilemma of an immediate administrative burden to fight a long- to mediumterm issue. However, the consensus is that we should be prepared prior to any legislative or regulatory reinforcement. In any case, will need to act in order to remain an attractive industry. On the product side, there was discussion of some Political Risk Event definitions and the Force Majeure interpretation. In our role as re/insurers of last resort, it is very difficult to prove the chain of events and there are very few systemic risks involved. At our next meeting, we intend to discuss potential synergies on sanction screening and PRI event triggers review at the ICISA level. We will also dig further into the potential for ESG ratings from companies like Sustainalytics. Finally, fraud will continue to be on the agenda as a topic of interest.

Committee Updates | The ICISA INSIDER | June 2022 The ICISA INSIDER | June 2022

Update Committee Chairs

Single Risk Committee Julian Spiegel

Julian Spiegel Chair of the Single Risk Committee Company: Navigators

The Russian invasion of the Ukraine is a tragedy that The Russian invasion of the Ukraine is a tragedy that causes human suffering on a formidable scale. At the Single Risk Committee, we attempt to restrict our focus on its impact on the credit and political risk insurance market, despite our sympathy for those impacted. In Helsinki, we began a vigorous discussion of the evolving situation that will continue over the coming months. Insurance losses caused by the invasion have already reached some specialty markets, most notably aviation, marine and standalone political violence. So far, the single risk market has been spared from any direct losses of significant magnitude.

Most of us made the mistake of underestimating the political component when going into the pandemic. With that in mind, most committee members are very cautious in their predictions of potential second order effects. The very uncertain economic future will continue to be shaped by political decisions regarding sanctions and trade stops on the one hand, and subsidies and support measures on the other hand. The impact on industries and regions will be highly heterogenous. The Single Risk Committee will reconvene in September (virtually) and in February (in-person) to stay abreast of crucial developments in a very fluid environment.

In the coming weeks and months, we expect to see the emergence of losses, most notably from Russian credit covers and from Ukrainian exposures to multi-country political risk covers. As a second order impact we might see an increase in global insolvencies caused by a degradation of the global economy, including a slowdown in growth, supply chain disruptions, and commodity price volatility.

June 2022 | The ICISA INSIDER | Committee Updates June 2022 | The ICISA INSIDER

Update Committee Chairs

Credit Insurance Committee Thomas Meyer

Thomas Meyer Chair of Credit Insurance Committee Company: Hannover Re As always, the Credit Insurance Committee discussed a number of different topics during our recent meetings in Helsinki for ICISA AGM Week. One of the topics turned out to be an overarching theme that was on the agenda in its own right but also tended to reappear during the discussions about other items. Not surprisingly, this was the crisis that originates in the Russian assault on Ukraine. Delegates had not met since the start of the situation emerged in late February and hence were interested to learn about each other’s views, assessments and expectations for the progress of the crisis. Just as the effects of the Covid19 pandemic appeared to have started to taper off, the political, social, humanitarian, military and economic distortions from the Ukraine/Russia crisis translate into new, potentially severe, impacts on credit insurance business. Also in business terms, Ukraine seems likely to be impacted more severely. While still meaningful as a market in its own right, especially regarding single risk credit, it is the smaller of the two markets. In turn, Russia (as well as Belarus) is also facing an economic downturn, and is the target of tough sanctions imposed by various countries. Handling such sanctions is becoming an extremely difficult task for credit insurers and reinsurers. A very high level of prudence and scrutiny has to be applied in order to comply with sanctions of different jurisdictions.

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External specialist service providers even appear to be overwhelmed by requests for compliance assessments, at least temporarily. This ambiguous picture is aggravated by different interpretations of sanctions as well as different sanctions clauses, not only between different national markets, but also between different credit insurers and reinsurers and even within the same groups. The uncertainty is further aggravated by the rapid speed of developments. Not exclusively, but significantly related to the Ukraine/ Russia situation, are the soaring of energy prices, which in turn contribute to the increased levels of inflation, and the threat of shortages of e.g. oil or gas in certain countries. The economic ramifications may be considered indirect impacts on credit insurance. Other elements attracting attention on the back of the Ukraine/Russia crisis are the war exclusion clause and the question whether the rather restrictive approach of most private credit insurers regarding the support of the defense industry should change. Credit insurers have responded very quickly to the situation, so that a significant share of short-term exposure has already been worked down. So far, only very few claims have materialized and reserves are still small, yet the situation will probably remain a focus for the credit insurance market for some time to come.

The ICISA INSIDER The ICISA INSIDER| June | June2022 2022

A Guide to Trade Credit Insurance By the International Credit Insurance & Surety Association A practical and accessible industry-wide reference on Trade Credit Insurance, written by a team of industry experts.

This compact volume is a practical guide for anyone interested in Trade Credit Insurance. The International Credit Insurance & Surety Association (ICISA) presents an approachable but detailed guide written collaboratively by carefully selected industry experts. The guide describes the lifecycle of the credit insurance product, from the initial application stage to the expiration phase of the policy, including practical use aspects for credit managers. The volume offers compact information on the history of trade, the need for protection against trade credit risks, and solutions offered by credit insurance providers. The focus is on short term credit, including whole turnover policies and single risk policies.

Readership Suitable for anyone interested in Trade Credit Insurance, from credit managers to policymakers.

Importance • • • •

Collaboration of a diverse group of experts from top organisations around the world Written in an approachable style, accessible to the non-specialist Includes extended glossary of key terminology Includes a list of relevant resources for further reading

Content Foreword; Introduction; Disclaimer; 1.What is trade?; 2. What is trade credit insurance?; 3. Product types; 4. Risk types; 5. Typical set-up of a trade credit insurance contract; 6. Premium, the price for cover; 7. Day-to-day policy management; 8. Buyer risk underwriting in trade credit insurance; 9. Debt collection; 10. Imminent loss and indemnification; 11. Renewal, expiry, termination of a policy; 12. Single risk business; 13. The single risk insurance market: Private and public players; 14. Reinsurance of Trade Credit Insurance; Trade Credit Insurance resources; Glossary of trade credit terminology

About the Author(s) / Editor(s) The International Credit Insurance & Surety Association (ICISA) brings together the world’s leading companies providing trade credit insurance and surety bonds. ICISA promotes technical excellence, industry innovation and product integrity, as well as addressing business challenges generated by new legislation.

Where to order my copy? The book can be ordered from Barnes&Noble and Bol.com.

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June | Regional June 2022 2022 || The The ICISA ICISA INSIDER INSIDER | Regional FocusFocus

Regional focus: The Zero-Covid policy is the main uncertainty behind China’s outlook By Hugh Burke, CEO, Asia Pacific Region, Coface Omicron hit China in February and its high transmissibility pushed daily new infections rapidly higher through March and April. Many cities across the country began imposing pandemic control measures and restrictions;

87 of China’s top 100 cities, which accounted for 70% of its GDP, have imposed some form of quarantine restrictions where harsh measures were on the rise by early April.

The widespread use of quarantine measures to achieve ‘dynamic zero-covid’ entails significant impacts on the economy. In cities under the most severe restrictions (e.g. city-wide lockdown), enterprises’ operations were suspended, non-essential employees had to stay home, logistics and warehouse services were seriously disrupted, all of which contributed to the recent economic downturn.

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Regional Focus |

The ICISA INSIDER | June 2022

While the current omicron wave is largely being brought under control into June, resulting in an easing of covid restrictions in cities with a controllable number of infections, the emergence of new clusters prompted authorities to announce fresh mass testing for parts of Shanghai and Beijing, just days after restrictions were relaxed. The re-imposition of COVID measures reflected the difficulty in pursuing a zero-covid policy against the highly transmissible Omicron variant, increasing economic risks for China. Therefore, authorities were increasingly vocal in efforts to stabilize the economy, protect livelihoods, and ensure smooth industrial supply chains. On 24 May, the State Council has announced

33 policy measures under six areas to boost the economy, and infrastructure investment was among them.

Despite significant economic costs, China is unlikely to change its dynamic zero-covid policy as it would be unaffordable. A study by Fudan University, published in Nature Medicine, concluded that abandoning the zerocovid policy could result in 112 million infections, and 1.6 million deaths. Given the high transmission rate of Omicron and the low efficacy of vaccines in reducing infections, China will need to continue imposing highpressure restrictions, keeping it in a dilemma of choosing between a very strict zero-COVID policy (with continuous constraints on economic activities) or a severe Omicron outbreak and/ or widespread of other new highly transmissible variants (which would lead to a new wave of disruptions to economic activities). We expect the second quarter to be a difficult one for Industrial production suffered from its first decline in two years and dropped by an annual rate of 2.9% in April; of which, the deepest contractions was recorded in Shanghai (-62.9%), Jilin (-41.7%) , and Beijing (-31.1%). Significant negative effects were noted in the service sector with activities contracting sharply beginning April. Despite seaports remaining opened, land logistics were disrupted, as reflected by the Logistics Prosperity Index (LPI), indicating a marked deterioration around business conditions within the logistics sector. The capacity of trucking services was substantially reduced as truckers were required to take a nucleic acid test and demonstrated proof of negative results to receive permission to drive. The sharp reduction in economic activities adversely impacted the labour markets as well. The surveyed urban unemployment rate rose to 6.1% in April, just a whisker below the 6.2% recorded at the onset of the pandemic in February 2020.

2022 GDP forecast for China from 5.4% to 4.4%. This

China, and therefore have adjusted our

growth projection is susceptible to significant downside risk due to the likelihood of new lockdowns. Sectors that already saw lengthy payment delays in 2021 will be especially vulnerable to new headwinds. According to our latest China Corporate Payment Survey,

construction, transport, energy, metal and agri-food sectors are the top five with the longest overdue payments. Apart from the

uncertainty related to zero-covid measures, rising raw material prices are increasingly a threat to corporate margins. While we remain sanguine about China’s growth story, the world’s second-largest economy is facing significant headwinds to growth in the short term, including a property sector downturn, the pursuit of zero-covid policy, weak 11

June 2022 | The ICISA INSIDER

| Insights

Implications for credit insurance from Russian invasion of Ukraine1 By John Owen, Head of Marine & Political Risk at Axis Capital

The resilience of the trade credit insurance market and its ability to withstand global economic shocks will be once again tested by the Russian invasion of Ukraine. Amid the devastating impact on the people of Ukraine, the country and its economy, in the interconnected world we live, the global economy has continued to function albeit under considerable additional strain. Current state Insurers at the ICISA AGM in June cited a relatively benign claims environment so far this year, despite the economic and political fallout from the invasion. It was suggested that

space, it was suggested that, to date, the actual number of claims notifications has been modest. Debts are still generally being honoured, and while the impact of the war

Given the short-tail nature of this segment of the industry, it would seem well-placed to weather the storm. Perhaps the biggest headache for management arises not from increased insolvencies but from new Russian laws that are preventing normal operations in the country. Nowadays, perfectly justifiable changes in risk appetite could have serious implications for local employees, including the threat of prison, if they are deemed to be acting against the interests of Russia. This is a situation that the industry has never faced before.

Potential future geopolitical consequences

The single risk/structured trade credit segment faces more uncertainty as it has exposure in both countries that will remain live over the medium to long term. Western sanctions had an immediate impact on Russian companies’ ability to borrow new funds, but, so far, the sanctions have been prospective and not retrospective. And whilst it is taking time for western banks and insureds to liaise with sanctions authorities, those same authorities are slowly providing their approvals for interest and principal repayments by Russian borrowers to be released to Western lenders. Again, in this

Many countries that rely on Russian oil and all countries that rely on Ukrainian wheat will be under pressure to find new sources, and for many already impoverished countries this will add to their considerable financial and political strain. Civil unrest in a raft of emerging markets is a real possibility as winter approaches, as are sovereign credit downgrades, particularly from oil importing countries.

claims in these two countries accounted for up on most Russian exporting businesses has to 10% of current losses in the whole-turnover been severe, the very high commodity prices space, as evidently the vast majority of domestic local today, in part inflated by the war, are helping to currency debts are still being paid. cushion the full effects of western sanctions.

While the immediate impact of the invasion has been modest, underwriters recognise that we remain in a fastevolving geopolitical landscape. It is possible that Russia will impose its own sanctions that prevent Russian companies from repaying loans taken out prior to the invasion. Of equal concern are the indirect consequences and potential claims flashpoints that could arise in the next few months as food and energy prices spiral.

1 This material is for general information, education and discussion purposes only. AXIS assumes no liability by reason of the information within this material.

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Insights | Impact on credit insurance Apart from the heightened risk of claims in the credit sector, the Russian invasion of Ukraine has brought into focus the correlation between credit insurance and other lines of business in a full blown ‘war’ situation. This differs to the dynamic we have seen when localised political violence has broken out over the past few years in multiple countries including the US, South Africa and Chile. Credit insurance, being a true specialty class, has been seen as an attractive and largely non-correlating line of business, especially by multi-line (re)insurers. With the changing world order, particularly the rise of China, leading to new potential flashpoints (e.g. Taiwan), (re) insurance management will rightly want to better understand how credit may be correlated with other lines of business. The Russian invasion will be a useful case study, as it has brought into focus that credit can be exposed to the same

The ICISA INSIDER | June 2022

events as various diverse lines, such as aviation war, marine war, cargo and political violence. There will also be greater scrutiny of policy wordings across lines of business. The political risks market, closely

associated with the structured trade credit market, will likely have its wordings tested in the next few months as a result of claims brought by western companies that have either abandoned assets in Russia or had assets destroyed in Ukraine. With confiscation policies sometimes covering ‘destruction’, there will be potential overlap with political violence wordings. While several issues are noted above, how the credit insurance market ultimately fares in this period of instability will depend on its ability to demonstrate true value in protecting the flow of trade and ultimately economies in Europe and around the world.

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June 2022 | The ICISA INSIDER

| Insights

Talent – the uninsurable risk? By Olfertjan Niemeijer, Managing Consultant at Intependent Recruiters

Insurable Risk? As recruiters in the Dutch market, we see one big uninsurable risk in our area of expertise for Dutch and other European markets : failing to attract new talent and struggling to retain existing employees. In many cases, businesses find it very hard, if not impossible, to replace lost talent.

And I am not referring to director positions. In many ways, these are still easy to fill – everybody wants to be a director, after all! No, I am talking about the positions within companies where the employees actually do the hard work. The Underwriters, Account Managers, Controllers, Software developers, Management Assistants and the like. Taking the Netherlands as an example; as of writing this article, there were 133 vacancies for every 100 people looking for work. This is a tricky challenge for companies. Many have had to respond to the reality by limiting or freezing growth plans. Even Schiphol, our national airport, has had to cancel flights because they simply cannot find enough security people to process the travelers. Do you need a good plumber, a carpenter, a plasterer? You better be prepared to wait! And the situation in the Netherlands is not unique. Most of our International partners are experiencing the same issues. Some of the important markets for sourcing good, young talent in Europe, like Romania and Poland, are no longer good options. The pandemic experience, coupled with improving career opportunities in these countries means that moving to other countries for a career or better pay is not the same attraction it once was. Not a very bad situation for an executive search/recruitment firm you might say? This is kind of the core reason of your existence isn’t it? Well, not quite. As recruiters, we only make money if we are able to actually fill positions. Saying no to long-trusted customers - in fact any customer - is something we hate to do. So we have been working with our clients on more long-term solutions. Being a trusted recruitment business partner also means commitment to clients’ long term recruitment goals. This includes offering solutions from a broad perspective inclusive of HR and Recruitment. HR will have an important |

role in compensation, retention and employee satisfaction. Our solutions are all about engaging with new recruits. The most important advice I can give to employers in the credit insurance and surety sector is: change your attitude towards applicants. Today, it’s all about candidate experience. That first and second interview are as important for you to sell your company and the vacancy to the candidate, as they are for the candidate to demonstrate their skill and experience. The days that you could grill a candidate in an interview and still expect that candidate to want to join your company are way behind us. Younger generations expect to be pampered and spoiled and we try to make our clients aware of that. A further piece we give to Dutch companies that may be applicable to other markets; change your company language to English. This is the only way to benefit from International talent in such a tight labour market. Over 40% of our recruits are non-Dutch speakers and the same will be true for other markets with less widely-spoken languages. But this doesn’t need to be seen as a weakness. You know what; people that move countries for work are more motivated, better educated and often much cheaper compared to Dutch employees. Because of this we are members of an International recruitment network (talentor.com) that enables us to engage talent in over 34 countries. An example: For some engineering roles we are focusing on attracting talent from South Korea. Job opportunities are low in Korea at the moment, especially for young people, which makes moving abroad more attractive to them. They also have an excellent schooling system and are able to adapt and integrate relatively quickly to living in European cultures.

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Insights | The ICISA INSIDER | June 2022 Interview | The ICISA INSIDER | June 2022

A relatively new thing to the Dutch market, as with many of your locations, is remote work. One of the good things to come from the Covid pandemic is that working form home has become much more accepted by companies and employees. Limiting travel for employees makes it much more attractive to stay in their job or accept jobs that offer remote work. We have already had vacancies where there are options to be located in the German or in the Dutch office, for example, because there is flexibility. The location of the candidate is not important anymore. During Covid we have seen many candidates improve their work/life balance by moving away from crowded, expensive, cities to other areas. And being able to work form Barcelona for a week does sound nice… During the Global Financial Crisis we also saw that many of our clients stopped educating and training new staff. Instead of campus recruitment, everybody was looking for experienced hires. Responding to that trend, we have been successful in setting up trainee programs for our clients. A side effect we have seen in these programs is that many of the mid-level and senior employees of these clients loved to share their knowledge with trainees. This in turn, made these staff love their jobs even more by giving them a role in developing their younger and future colleagues. There is no golden rule that will allow a company to be the employer of choice. Being aware of all developments in the market and looking at your company critically from the outside is the best way to start. I am sure if you are able to do that you will even find reasons that make credit insurance companies or sureties the sexy employer of choice that also made you chose for that career!

About Independent Recruiters Independent Recruiters is the recruitment, selection & executive search agency for staff positions in, among others, Finance, ICT, Sales & Marketing, Recruitment, Purchasing and HRM. Together with our labels; Independent Engineering, Independent Hospitality, Independent Facility, Independent Professionals, Independent Public, Independent Retail and Independent Life Sciences, we have helped hundreds of professionals find permanent or temporary jobs since 2003 Since 2020 we have been part of the Talentor. com network. An international recruitment network with more than 250 consultants in more than 30 countries on 4 continents.

June 2022 | The ICISA INSIDER

| Insights

Production and Financial Networks: A New Kind of Monitoring Tools in an Era of Financial Vulnerability By Mélina London, Economist at Coface

Today’s production mainly takes place on a globalized scale, following the extension of global value chains over the last decades. However, recent events have questioned this organization of production. News stories have repeatedly shown how one weak link in the chain could endanger the whole production process. Because firms in Western Europe use inputs from China in their production at home, disruptions in China can fully endanger manufacturing activity in Europe, as observed at the start of the Covid pandemic.

The closure of automotive plants in 2021 in Europe – as the result of electronic chips shortages in Taiwan – is only another example of such propagation of disruptions. The position of the weak link in the global value chain is crucial in this propagation. The closer a firm is to the end of the value chain, i.e. downstream, the higher is its vulnerability to supply shocks. Indeed, shocks will propagate, with an amplification at each step if upstream parties do not have the correct buffers to face the shock. The magnitude of the Russo-Ukrainian war fallouts reflect the importance of the shock position. Because both Russia and Ukraine produce many raw materials upstream in the value chains, the war is affecting a wide diversity of sectors. These fallouts add to existing pressures on each link of the value chain, in a domino effect. While it is impossible to be fully shielded from those shocks given the current structure of production and required skills at each step of the process, firms should be able to improve their vulnerability assessment through the identification of such production links and resulting interdependencies. Building adequate buffers will require a global strategy of diversification, involving all actors in the value chain.

However, these production links are only part of the problem; one side of the coin. Besides their interdependence in terms of production, firms also often provide credit to one another to finance their trade flows. Under these specific terms of trade, suppliers provide credit to their buyers by financing the production of goods or service and allowing them to defer payments. By doing so, they interlock their balance sheets to their partners’ ones. Trade credit appears as an asset for the supplier and as a liability for the buyer. This creates an additional source of vulnerability on the financial front. Suppliers depend on their buyers’ repayments to fulfill their own trade credit obligations to their suppliers. A reduction in trade credit provision upstream in the chain is likely to cause lower trade credit agreements in the rest of the global value chain. Only in this framework can we understand the global consequences of Thomas Cook’s bankruptcy in September 2019. When the main British tourism agency entered into bankruptcy, financial distress propagated to its suppliers because of the importance of Thomas Cook as debtor, leading to a series of defaults of firms that could not compensate for the losses and passed the default to their own suppliers.

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Insights | The The ICISA ICISA INSIDER INSIDER || June 2022

This financial transmission channel will strongly matter in the months to come. Indeed, during the last two years, firms recorded very low level of insolvencies compared to what could have been expected in such a macroeconomic background. Government-backed loans in advanced economies have allowed sustained liquidity flows to companies which would have entered into bankruptcy otherwise. Nonetheless, those government support measures are now coming to an end as dates of first repayments are approaching. At the same time, rising inflation has led major central banks (Fed, ECB, BoE) to tighten their monetary policies and raise their key interests rates, a first in a while. This change in monetary conditions – which will in all likelihood be drastic as inflation has proven to be more entrenched than initially expected – will affect overall financial conditions all around the world. In particular, firms will have tougher access to external financing and pay more to get credits, making it harder to rollover their debt and ensure their liquidity position. This comes at a time when firms also have to face a strong increase in input costs, driven by the global rise in commodities prices and supply shortages. Depending on the sectoral competitive intensity and their own market power, some firms may prefer cutting their profit margins instead of rising their selling prices, thereby degrading their financial statements. Because of this combination of factors, firms’ financial sustainability is likely to be heavily affected in the short run. This means defaults are more likely to

materialize going forward, and monitoring processes will be key to prevent series of default. Because they involve highly sensitive financial data, financial interactions are too often forgotten in global vulnerability assessments. Nonetheless, identifying such interactions can prove very useful. Using Coface data on inter-firm trade credit and defaults in Western Europe, recent research1 identified key interactions across sectors that improve the short-term prediction of financial distress in a sector compared to what can be anticipated using macroeconomic tools. It appears that, after controlling for the macroeconomic outlook, monitoring financial health in a sector involves monitoring financial distress in production-related sectors over the last quarters. Depending on sectors, such cross-sector interactions can bring key additional information compared to what macroeconomic monitoring can provide. To predict financial health in real estate activities, ICT, construction and IT services, past information on financial distress in productionrelated sectors will bring valuable information. The same research has shown that among those cross-sector interactions, cross-country relationships dominate. From there, we can conclude that cross-sector networks can explain parts of existing interdependencies across countries, which are not fully captured by country-level indicators.

1 Mélina London. Cross-Sector Interactions in Western Europe: Lessons From Trade Credit Data. 2022. (hal-03667832)

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June 2022 | The ICISA INSIDER

| Insights

Finally, some sectors also appear to be key information providers for the rest of the considered Western European economies, with their level of financial health predicting financial distress in many other sectors. Those sectors are construction, wholesale and retail, chemicals and the automotive sector. They should be monitored in priority to anticipate widespread financial vulnerabilities1.

1 For more details on those results, see: Mélina London. Cross-Sector Interactions in Western Europe: Lessons From Trade Credit Data. 2022. . (hal-03667832)

Such results provide a first direction to improve monitoring processes to respond to the rising level of risks. Production and financial spillovers will be driving most of the aggregate impact of current shocks, explaining how current events are likely to have significant consequences in the coming quarters, if not years. A lot of uncertainty remains on the magnitude of the shocks, depending on next developments, especially when it comes to geopolitical tensions and Covid-19 pandemic. Nonetheless, when facing such uncertainty, up-to-date monitoring process will be crucial to react quickly. Including a network component in any future vulnerability assessment, both in production and in financial terms, can provide a first set of solutions.

Insights |

The ICISA INSIDER | June 2022

Loss Given Default (LGD) working group is open for new members!

After the successful conclusion of the previous instalment of the LGD study on trade credit insurance, we are re-starting the project to establish an LGD for the year 2017, 2018 and 2019.

Join ICISA LGD Working Group!

LGD stands for “Loss Given Default” and aims to give guidance on the proportion of a loss in relation to granted credit insurance commitment when a buyer defaults on a portfolio basis. This is of great importance for capital modelling of insurance and reinsurance undertakings. It is equally useful for reinsurance buying decisions for ceding companies and excess of loss pricing for reinsurers. A public version of the latest report may be found on by following the following link. Participation to the data gathering phase is open to all primary insurers, independent of ICISA membership. All data will be gathered and processed under strict privacy rules in cooperation of the Versicherungsforen Leipzig. The processed data is fully anonymized. All data suppliers will receive the full resulting report including loss distribution free of charge. Other ICISA members will be charged at cost.

If interested in joining the data gathering phase of the LGD Project, please contact us via secretariat@icisa.org

For participation to the data gathering phase of this project, please contact us via secretariat@icisa.org.

June 2022 | The ICISA INSIDER

| Interview

ICISA Welcomes a new member: DEVK Re ICISA members warmly welcomed DEVK Re as a new member to the association. We talked with Renate Kerpen what was the motivation behind their membership. In the next paragraphs you can read her answers, and more about DEVK Re and their reasons to join ICISA.

Member Profile As a member of the DEVK group, DEVK RE’s overriding objective is to have the most satisfied customer. For DEVK RE, this means actively meeting all of the standards and needs of the customers. This is no small task. To accomplish this, DEVK RE have set out a series of values to be observed consistently and in everyday’s work: trust, individuality and flexibility, transparency and continuity. Echo Re was founded in 2008 and is a wholly owned subsidiary of the German DEVK Group. Its treaty reinsurance portfolio covers all P&C and a broad range of specialty lines of business from cedants in Asia, the Middle East, Africa, Latin America and the Caribbean. Echo Re’s mission is to be a trusted reinsurance partner that is adding value by identifying needs in unison with Echo Re’s clients, jointly formulating effective solutions and providing streamlined reinsurance services.

Motivation to join ICISA Asked about the motivation behind applying for ICISA membership, Renate exmplains that: “From the start of our strategic move to actively develop credit/bond business about 4 years back we had our eyes on a membership. From our former professional life, we knew about its existence and the advantages of this community and yearned to return to the fold. We feel honoured to have been accepted so swiftly as a member. Our companies’ commitment to invest personnel and material resources is an indicator of our group’s dedication to this specialty line. “

Renate Kerpen, Specialist Cyber and Credit / Bond at DEVK Re “We feel honoured to have been accepted so swiftly as a member. Our companies’ commitment to invest personnel and material resources is an indicator of our group’s dedication to this specialty line.”

Interview |

Expectations from ICISA As Renate highlighted, “our expectations from ICISA are manifold, let us pick the most important: market intelligence, discussion forum, education source, industry representation. We hope to gather, but of course also to contribute to general market intelligence. An increasingly uncertain and ever faster developing environment requires us all to keep on our toes and constantly evolve our view on the world. This will be much easier achieved in exchange with other professionals from the field within ICISA. The still small size of our team makes us very eagerly looking for experts from the field with whom to discuss the impact of economic, political and sociological changes for our work area, challenges and opportunities and potential ways to deal with them. The week just passed so pleasantly in Helsinki has already fulfilled that expectation to to our complete satisfaction and makes us look forward to future meetings.

The vast knowledge at ICISA is a great base of education on all levels, various formats such as the surety week we took part in earlier this year, or also the seminars offered via STECIS are excellent examples. We look forward to using ICISA’s resources to educate future new associates. Last but not least, we see ICISA as an excellent partner to represent our interests in politics and economics as our industry requires constant explaining and promoting, with so many parties unaware what we do, and especially what we can do.” Topics of interest

The ICISA INSIDER | June 2022

Cyber is a topic that has also reached credit and surety. From digitalisation of workflow to the introduction of new technologies such as blockchain, cyber is ubiquitous. Risk analysis trying to fathom the potential chance of an insolvency will have to increasingly include cyber resilience of a company’s set up, adding a new twist to risk analysis. As cyber is a moving target it will prove to be a very fruitful discussion topic.“ ICISA Committees membership Asked about their interest on ICISA Committees, Renate expressed her interest to join the Surety Committee: “The one-week-format in May 2022 gave us a chance to take a glimpse at the ongoing discussion and work done in all the committees and we were deeply impressed. We are not (yet) active in all the areas covered; due to our book’s strong focus on surety we have decided to join the surety committee as we believe that the reciprocal benefit will be the highest by far in this team. For the time being, with only two underwriters, we will keep it to one committee to ensure that we do not spread ourselves too thinly on the ground.“ Benefits for other ICISA members Looking at how could ICISA members benefit from DEVK Re experience, Renate highlights: “We are very open to share our experiences in the markets from our mutual-induced perspective. We already noticed that our worldwide market coverage gives us unique insights and allows us to directly see references which are maybe more difficult to detect in larger company networks.

Whether it is sharing market intelligence, helping drive discussions, participate in committee work or contributing to education efforts, we are thrilled by the vast number of opportunities and happy to bring our goods to the table.“

When it comes to the important topics for discussions between ICISA members today, Renate mentioned the benefit of joining conversations about the current geopolitical situation and cyber risk: “Credit and surety are experiencing the full impact of all topics currently on the table, be it the war in Ukraine, the energy crisis, inflation, supply chain interruption and Covid 19.

June 2022 | The ICISA INSIDER

| Insights

How credit insurers and sureties can benefit from the Global LEI System? By Gerard Hartsink, Chairman of ICC DSI Industry Advisory Board Businesses and governments around the world are digitalizing their business and/or reporting processes. The International Chamber of Commerce1 started the ICC Digital Standards Initiative with the objective to establish a more harmonized and digitized trade environment globally for the international supply chain2. The initiative reviews how the data of key trade documents such as Insurance Certificates, Custom Bonds, Bills of Lading, etc. could be harmonized to ensure high quality processes. ICISA has accepted to join the DSI program and participates in the DSI Industry Advisory Board. In this article more information is presented on the background of the LEI (Legal Entity Identifier) standard3 that has been adopted for the ICC DSI program and will support the business processes of ICISA members. What is the LEI? The LEI (Legal Entity Identifier) is a 20-character alpha-numeric code based on the ISO 17442 LEI standard developed by the International Organisation for Standards, which connects key reference data enabling clear and unique identification of legal entities participating in (financial) transactions. There is only one LEI per legal entity. What is Global LEI System? In 2012, the leaders of the G20 decided to create a Global Legal Entity Identifier System (GLEIS) and mandated the Financial Stability Board (FSB) to implement this decision. The GLEIS is planned to be used by the authorities of any jurisdiction or financial industry to assess risks (i.e. systemic) and by the private sector to support improved risk management and increased operational efficiency, among other uses.

ICC has 45 mio corporate members. See: https://iccwbo.org/about-us/

For the ICC DSI program see: https://www.dsi.iccwbo.org/

For more information see Chapter 8 of the ICC Guide:

Insights |

The FSB founded GLEIF (Global Legal Entity Identifier Foundation) in June 2014. GLEIF is mandated to develop and maintain the global LEI system. GLEIF is subject to oversight of the LEI ROC with agencies from the public sector of the majority of G20-FSB and some other countries.

The ICISA INSIDER | June 2022 The ICISA INSIDER | June 2022

SAVE THE DATE!

GLEIF services GLEIF manages a network of LEI issuers to provide trusted, open, and reliable data for unique legal identification worldwide. GLEIF and its LEI issuers are, by design, non-profit organizations. The GLEIF services are available in 14 languages of the G20 countries. The LEI data of legal entities include reference data of that legal entity, including the type of legal form, the data of the local/national business register, the data of the direct legal parent and/or the ultimate legal parent (if there is a parent). The Global LEI System is designed as a broad global public good for the benefit of all users of the public and private sector. The LEI data are designed to be free of charge to ensure accessibility of the data for any user. Legal entities also have a choice of competing LEI issuers that are accredited by GLEIF.

ICISA TRADE CREDIT INSURANCE WEEK

Since 2014 over 2.1million legal entities have registered form nearly all countries. Value of the LEI for ICISA members Credit insurers and sureties can benefit from the LEI program in their business processes. The data of their business customers and other partners (including changes in data) are available free of charge. Via an API, daily updates are available. Adding the LEI code to contracts and to the documents such as the Insurance Certificate will simplify the digitalization and standardization of the processes in systems and contribute to an improvement of the risk management and increased operational efficiency of the ICISA members.

26 - 30 September 2022

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June 2022 2022 || The June TheICISA ICISAINSIDER INSIDER | Announcements

ANNOUNCEMENTS New appointments at Swiss Re

Swiss Re has reviewed its leadership structure for the Credit & Surety reinsurance business and announced the following new appointments or changed roles effective June 1, 2022: • • •

Martin Pfister, Chief Underwriter Credit & Surety. María Rodríguez, Head Credit & Surety EMEA & Latin America. Pius Leupi, Head Credit & Surety EMEA & Asia-Pacific.

Martin Pfiseter, Chief Underwriter Credit & Surety Swiss Re

María Rodríguez Head Credit & Surety EMEA & Latin America Swiss Re

Pius Leupi Head Credit & Surety EMEA & Asia-Pacific Swiss Re

The ICISA INSIDER | June 2022

ICISA Members

ICISA Evert van de Beekstraat 354 1118 CZ Schiphol The Netherlands +31 (0)20 625 4115 secretariat@icisa.org www.icisa.org