Risk - reputation

Insurance & Corporate Treasury

Report date: 
19 Jan 2024

Commentary

We first held a session on insurance eighteen months ago [report here]. Like that one, this was a very lively discussion, with a lot of experience sharing and common issues. 

The main topical insight was that, compared to the past three years or so, the market has ceased hardening, or is doing so more slowly. Experiences were mixed, but, even if premiums are still increasing, the rate of increase has slowed down. Pressure was significantly lower in the US property market, due to a less severe hurricane season, and D&O. Several participants also reported that the cyber market seems to be maturing. Even so, the environment remains challenging, with a net increase in premiums often happening, if only due to the rise in the value of the assets being insured. Real estate valuations are rising, while inflation and changes in supply chain structures are causing inventory values to rise.

A lot of the call was spent discussing structural and strategic questions. I strongly encourage people to read the detailed report, but the main items were:

  • Where does insurance belong? Again, no simple answer, but one participant suggested it may depend on the company: it sits more naturally in treasury for asset intensive companies; while HR might work better for service industries.
  • How much cover to buy, versus how much risk to keep in house? There is no magic formula. Most took the view that the cover purchased should not vary according to the cost of premiums, but it does happen in some cases. One suggestion was that the approach should vary according to the company’s ability and willingness to absorb risk. It is likely that a company which is owned by pension funds may tend to buy more cover to reduce earnings volatility, while 
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Winding Down Russia: Treasury Challenges

Report date: 
29 Apr 2022

Commentary

This was our third call on the situation in Russia. It focused on the practical challenges people are facing: nearly all participants are either running down their businesses or continuing on humanitarian grounds for products which are exempted from sanctions, particularly in the healthcare sector. However, as one participant put it, winding down is easier said than done.

Many businesses operate through franchises in foreign countries. Terminating the franchise agreement may not be enough to stop them continuing the business and using the brand name – some high profile companies which have stopped operations still have franchisees who are continuing to trade, using the name.

In some cases, the name remains on the business. This makes it difficult for the brand owner to walk away, as the reputational risk remains.

People in the healthcare sector feel a need to carry on for humanitarian reasons. For them, there are significant logistical challenges getting new shipments into the country: no flights, very little sea freight, so heavy dependency on road transport, with limited willing suppliers. They are encountering an additional issue: sanctions apply based on customs codes, and some health care products have not been appropriately coded.

In other sectors, companies continue to sell down their existing inventory – but even this can be complicated, as fresh inputs can be required to make goods saleable.

Still other participants have operations which are purely local, and do not require imports. These will typically continue to function, though moves are being made to make them fully independent.

Despite all the above, most participants continue to be able to pay down intercompany debt, pay dividends and settle outstanding intercompany invoices.

Cash operations are complicated by the need to segregate payments emanating from sanctioned banks. Again, this seems to work, and customers are usually willing to transfer their payments to non sanctioned banks.

Many Russian entities have taken steps to disguise their real ownership as a means of evading sanctions: some participants are using a database to identify the true beneficial owners to see whether sanctions apply.

Most international banks continue to function, but SocGen recently announced it is selling Rosbank. This raises the concern it may be sanctioned in the future.

Most international banks are refusing to open new accounts, and none is interested...please sign in to continue reading 

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