Well managed trade receivables are critical to the success of any Business-to-Business company. Indeed, trade receivables essentially represent:
- The turnover generated by the company as well as;
- The future cash of the company.
Companies are increasingly implementing funded solutions to finance their trade receivables, which requires credit insurance to be used as collateral in the transaction. Aon continues to invest in credit solutions that support our client's liquidity position in these volatile times. Our clients look to our advisory capabilities for distinctive client insight, analytical capabilities and superior client outcomes. Through our funded solutions proposition, Aon aims at bridging the gap between risk and capital, optimising working capital for businesses around the world.
Secure financing to help grow the business
- Our client is an international agribusiness group with operations across the world and over USD 6BN in annual revenues.
- Aon was approached by the company to arrange off-balance-sheet financing – utilising the securitisation of trade receivables – as part of a strategy for long-term growth.
Generate cash before quarter-end
- Our client is an international pharmaceutical company with operations across the world and USD 3BN in annual revenue.
- Aon was approached by the company to arrange « spot-recurring » off-balance-sheet financing before the quarter ending for 13 subsidiaries in Europe and the US.
- Our team created a hybrid solution with a spot operation for short-term cash generation of over USD 250MN before quarter-end.
Credit insurance in support of banks
Credit insurance is an important tool at banks disposal. By insuring the credit risks posed by their clients payment obligations, it makes it easier for banks to lend against these assets and banks that use insurance can put less capital aside against the finance extended, which increases their lending capacity.
Many banks have embraced this idea, it increases price competition, and banks can bring risk-takers into a portfolio of loans, who have a differentiated risk appetite and differentiated pricing expectations compared with traditional credit investors.
According to Alice Black, Financial Institutions Lead at Aon, “Based on recognised market intelligence, we estimate that the notional amount of credit insurance covering outstanding bank exposures is continuously growing and is in excess of USD 300BN”. The use of credit insurance has created opportunities with banks continually reviewing their capital structures, both as a matter of regulation and for reasons of prudence.
Rising critical importance of ESG
Environmental, Social, and Governance (ESG) issues are front and centre for the world’s biggest banks. JP Morgan, Wells Fargo, Bank of America, to name a few have all unveiled measures to enhance their commitment to ESG themes. As credit insurance continues to align itself to bank needs, the market has also now started to respond to some of the emerging ESG lending mechanics banks are rolling out under this fundamental shift.
- A bank client required cover for a multi-billion dollar facility with respect to a borrower in the transportation sector. The financing agreement provides for fixed-price ratchets depending on the counterpart meeting specific carbon dioxide emissions threshold conditions.
- Aon worked with insurers to mirror the price ratcheting of the bank’s finance facility into the insurance premium mechanics. This is a specific new development in the credit insurance market and all parties worked together to design this specific product feature.
- Under the financing and the related credit insurance, the transportation company is financially incentivised to limit its carbon dioxide emissions. Price ratcheting based on ESG KPIs within the credit insurance industry is expected to open the door to other positive initiatives and innovations going forward.