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Industry Overview
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Credit Solutions - Financial Institution Risk Management
Macroeconomic volatility is creating headwinds for merger and acquisition (M&A) transactions. Inflationary pressures have driven up interest rates, triggering a global repricing of assets while simultaneously making borrowing more expensive. This volatile climate has already caused economic debris to fall, with the failure or takeover of several banks on both sides of the Atlantic as collateral damage. Future liquidity events are probable, with unpredictable ripple effects.
Geopolitical uncertainty remains a constant, but the causes and impacts vary around the world. In Europe, for example, the conflict in Ukraine has driven commodity and energy prices up, directly increasing operational costs for multiple industries and amplifying costs across entire supply chains, impacting trade relationships. Globally, eyes are on China, with the potential changing world order adding complexity to decision making. Investment models need to consider the economic and political volatility of the ‘3 D’s’ - Deglobalization, Decoupling and De-dollarization.
Amid geopolitical tensions, supply–demand instability and shifting markets, deal volumes are steadying after recent declines. Making sustainable long-term investment decisions in a volatile environment will challenge dealmakers in 2023. In navigating these challenges, dealmakers are reassessing their financing strategies to access and safeguard capital.
As a result of these factors, financing transactions are shifting in the M&A market. With debt markets less accessible for certain investors, and only at a higher cost, banks are reluctant to finance big ticket deals given that they are still about to clear credits from their books that have been stuck in syndication. High-quality corporate entities are picking up some of the weakness, taking advantage of their flexibility and relationships with banks to perhaps finance deals at more favorable average earnings multiples. Additionally, more nontraditional sources of financing are being used. Private credit funds are eager to deploy capital and are acting as financiers themselves as they have been able to negotiate better pricing and debt servicing covenants.
High interest rates are not necessarily an issue for private equity firms, provided those rates are stable. What has affected the current M&A market, is the sudden fluctuations that occur while deals are being negotiated, affecting valuations over a short period of time. These shifts mean that debt financing is not as generous for borrowers as it was a year ago, but, for high-quality transactions, financing is still available. Safeguarding capital amid economic volatility will be critical in building sustainable growth. Trade credit insurance can unlock value in deals in three key ways.
Industry Overview
Crisis Management
Industry Overview
Credit Solutions - Financial Institution Risk Management
Driving down the cost of borrowing and increasing financing.
Trade credit insurance has historically been used by businesses looking to hedge risk on what is usually their biggest asset, their accounts receivable. But as we look toward continued economic volatility, companies are using trade credit insurance to reduce the cost of financing.
When securing debt to finance deals becomes more challenging and expensive, it constrains the amount of capital buyers can collect to reach vendors’ expectations on valuations. That causes companies to turn to trade credit insurance to bridge the financing gap by credit enhancing their accounts receivable, lowering their overall cost to finance deals - putting trade credit insurance to work. Not long ago, dealmakers had sufficient funds to forego this route, as the cost to finance through banks was significantly lower. Now, firms are using trade credit insurance to insure their pool of receivables, transferring their risk to a AA/A+ rated insurance company. A bank that offers receivables finance that is backed by this form of unfunded credit protection for a portfolio company’s account receivables pool can not only lower their cost to finance due to the preferred risk weighted assets treatment, but also help bridge the gap to vendor price tags.
Lenders use trade credit insurance as well, insuring receivables finance portfolios (often on a silent basis) and facilitating off-balance sheet structures. Structured credit insurance is also used by lenders to insure loans, such as those for acquisition finance, increase facility sizes and improve capital. Insurance capital will continue to help bridge funding gaps and increase credit accessibility.
Reducing post-deal volatility.
There are a few significant ways that trade credit insurance can reduce post-deal volatility. Trading issues commonly identified within the scope of the Financial Due Diligence include difficulties in collecting debts or identifying high historical levels of bad debts. It is imperative to include warranties in the Share Purchase Agreement to give certainty to the purchaser that no assets are paid for which do not carry any economic value. The identification of issues in the target’s customer base will support the strategic risk mitigation decisions required by the purchaser post-completion. Trade credit insurance therefore helps to bridge the negotiation gap between seller and buyer and adding clarity to the economic value of a business’s receivables.
Secondly, when carving-out an entity, new sources of financing will be required. In those cases, buyers will often have to provide new credit lines. Trade credit insurance can help firms enhance collateral and secure additional financing from banks.
In addition, in the wake of a transaction, buyers can use the access to trade credit insurers’ data platforms to model expected credit losses, implementing the model required according to IFRS 9. Once identified, this may be used as a price negotiation tool for the purchaser.
Finally, political risk insurance (PRI) is a useful tool for buyers. As a risk mitigation tool, PRI helps to provide a more solid environment for investments into developing countries, and to unlock better access to finance. Some examples of events covered by PRI include war, terrorism, government expropriation that can directly affect an investment's operation and violate its ability to perform critical functions.
Smoothing out falls in company valuations.
Any time a portfolio company has significant concentration risk, credit insurance is vital. When a company relies too heavily on a small number of customers or suppliers, any unexpected shock from those customers or suppliers will cause a ripple effect with the company, usually leading to a restatement of earnings and a change in company valuation. Credit insurance may prevent such a situation by monitoring customers’/suppliers’ default risk and ultimately help level out that shock.
In order to build sustainable growth and increase a portfolio company’s valuation, selling to new markets and new customers is key. Credit insurance can help monitor and transfer the risk of entering new markets and selling to new customers, not only acting as a risk management tool, but a longer-term growth tool as well.
The key to a successful M&A strategy is to take a longer-term view. Planning for unforeseen volatility is always going to be better than waiting for it to materialize. That’s no easy task, given the current macroeconomic conditions and geopolitical climate. But by using data to identify risk, isolating the risks with insurance and using trade credit and political risk insurance as growth tools, firms can overcome a challenging environment and reduce volatility.
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Non-financial risks are often difficult to predict and quantify, yet present a real threat to financial institutions. In this volatile environment, risk management is playing a greater role in creating business resilience and identifying where capital should be deployed.
Article 9 mins
Daniel Halter, Director Global Insurance at Sandoz, discusses how smart risk and insurance management supported the Sandoz core mission to provide affordable, off-patent medicines to patients who need them most with Ana Serdarevic, Head of Aon’s Transaction Advisory Services for DACH.
Article 7 mins
Business leaders are aware of AI-driven cyber risks and their implications. But understanding changing risk profiles to make better decisions around the management of new exposures is the key to cyber resilience.
Article 8 mins
U.S. freight and commuter rail industries are facing excess liability and property issues for different reasons. These railroads are critical to infrastructure and vital to the economy, yet finding effective solutions remains complex.
Article 11 mins
As private companies prepare for an IPO, they face increased risks that require directors and key leaders to adopt essential risk management strategies to ensure a smooth transition.
Article 10 mins
As climate change intensifies the frequency and severity of extreme weather events, public entities and businesses need more flexible funding solutions. Parametric stands out as an adaptable resource capable of swiftly responding to potential disasters.
Article 17 mins
Funding challenges due to macroeconomic factors have prevented several green and blue hydrogen projects from getting off the ground. Organizations facing hurdles in accessing capital can work with risk and insurance experts to expedite projects and help make the promise of hydrogen a reality.
Article 11 mins
Learn how strong human capital strategies can help recruit, retain and motivate vital talent in a competitive and evolving job market.
Article 7 mins
As corporate boards meet to discuss strategy, including any changes to executive compensation, there are key trends to consider for the year ahead.
Article 6 mins
Companies aiming to be a net-zero company may face many challenges during the biofuels transition. Read more on risk strategies to cut through complexity.
Article 6 mins
With DC schemes growing across Europe, many organizations are realizing the importance of ensuring strong performance from their investments. Here’s how asset owners and managers can optimize DC outcomes through the right investment strategy.
Article 9 mins
With no federal paid leave law in the U.S., employers have limited guidance in designing equitable and comprehensive paid leave programs to support their workforce. Looking beyond compliance to focus on strategy and values will help create fair and well-designed policies.
Article 8 mins
Amid economic uncertainty, companies are taking a careful approach to hiring and salary planning — one that includes focused hiring strategies, revising salary budgets and implementing measures that respond to the current economic environment.
Article 8 mins
Hurricanes Helene and Milton insured loss estimates are expected to fall between $34 billion and $54 billion. Healthy, well-capitalized insurance and reinsurance markets are positioned to absorb those losses.
Article 17 mins
Buyer-friendly conditions continued across much of the global insurance market in Q3, painting a largely positive picture as we head into year-end renewals.
Article 10 mins
A successful M&A strategy relies on due diligence across financial, legal, human capital, technology, cyber security and intellectual property risks. As cyber threats become more complex, robust cyber due diligence in private equity and acquisitions is increasingly necessary.
Article 8 mins
Cargo theft in the transportation industry is escalating, driven by sophisticated criminal tactics that exploit both physical and digital vulnerabilities. Businesses must adopt proactive risk management strategies to counter these evolving threats.
Article 11 mins
Trade, technology, weather and the workforce are interconnected trends shaping the future of business in North America. Understanding them is key to long-term resilience.
Article 9 mins
Competition and capacity are dominating the cyber liability market and pricing remains favorable as a result. Taking advantage of the current buyer’s market to build sustained cyber resilience is the key to success.
Article 10 mins
The growing renewable energy sector is boosting M&A activity. Risk transfer solutions can help unlock capital access in these transactions.
Article 7 mins
Digitalization presents both opportunities and challenges in life sciences, driving new organizational approaches to human capital to keep up with evolving talent needs while building a resilient workforce.
Article 5 mins
As financial institutions reshape human capital strategies for the digital age, leaders face pressure to balance the risks and opportunities of digitalization.
Article 9 mins
Employers are concerned that previous wellbeing strategies aren’t moving the needle enough. But when wellbeing is part of an organization’s culture, it has positive effects on costs, engagement and productivity.
Article 6 mins
Financial institutions can increase their resilience to volatile threats through enhanced risk management frameworks and innovative models powered by people data and technology.
Article 10 mins
As the deadline for implementing the EU Pay Transparency Directive fast approaches, some financial institutions feel unprepared to comply. These five steps can help guide the way through the upcoming regulatory landscape.
Article 9 mins
Thriving organizations rely on thriving employees to succeed. With healthcare costs on the rise, it’s time for employers to challenge the status quo in providing health benefits. Organizations need to consider the human side of these increases and take bold action to achieve better outcomes.
Article 9 mins
The aviation industry is watching the rise in nuclear verdicts with concern as social inflation and associated risks continue to squeeze the sector. Organizations should review their risk management processes to limit the dollar value of future losses.
Article 12 mins
As AI evolves, directors and officers must maneuver through a complex landscape of regulatory and legal risks. Implementing best practices around the use of AI and robust governance-focused risk mitigation can help manage exposures.
Article 11 mins
Middle market organizations face unique challenges in the ever-changing cyber environment, requiring holistic insurance solutions and enhanced resilience readiness to manage risks that could impact profitability.
Article 17 mins
With life expectancies and retirement ages on the rise, organizations can capitalize on the value that older employees offer and support them by fostering a workplace where both the business and its people thrive.
Article 8 mins
As climate change compounds wildfire risk, organizations play a critical role in protecting their workforce before and after an event.
Article 10 mins
The transportation and logistics industry faces unique challenges which can negatively impact employees' health. A cultural shift to more tailored wellbeing strategies can improve health outcomes and boost company performance.
Article 6 mins
Pooled employer plans (PEPs) can offer a streamlined solution to the retirement planning challenges inherent in spin-off and M&A events.
Article 20 mins
The role of HR professionals is becoming more strategic, which requires collaboration with other areas of an organization to help drive growth. Given that people and benefit costs are a large portion of business expenses, partnering with finance is a natural step forward.
Article 5 mins
Aon analyzes employee perception about return to office policies following the COVID-19 pandemic, as well as recent actions one organization took for alleged lack of remote employee productivity.
Article 11 mins
Despite subdued global M&A in 2023, positive trends have been emerging in the M&A insurance market to help clients improve their deal-making and ‘value-protection on investment’.
Article 7 mins
Graeme Hudson and Ghonche Alavi from Crisis24 discuss Crisis24’s approach to Political Evacuation and Threat Management with Cara LaTorre from the Financial Services Group at Aon.
Article 8 mins
European construction contractors are looking with increasing interest at Asia, but to expand successfully into the region, they need to overcome key workforce and market challenges.
Article 8 mins
As digitalization presents new risks and opportunities for life sciences organizations, implementing cyber and data resilience ensures that innovation doesn’t result in business interruption.
Article 7 mins
For insurers, making decisions on where and how to deploy capital becomes more difficult during times of volatility.
Article 5 mins
Employers in the U.S. should understand the unique risks associated with voluntary benefit captives when considering alternative insurance arrangements for their voluntary benefit plans.
Article 7 mins
Workers compensation is an area of risk management that could benefit from a more holistic approach. A safety program that incorporates wellbeing and uses data in a meaningful way can contribute greatly to lowering costs.
Article 8 mins
Firefighters face a unique set of risks and long-term health consequences from their jobs. Aon worked with Minnesota firefighters to create a benefit program to address three primary health issues.
Article 8 mins
Open legacy workers compensation claims place rising financial burdens on employers, who are faced with closing out aged claim inventory and improving their balance sheets in the process.
Article 5 mins
Organizations must consider the impact of climate change on property, which will vary now and years into the future. Therefore, a thoughtful approach can enhance risk mitigation and resilience strategies.
Article 8 mins
Helping midsize organizations strike the right balance between risk and compliance with a comprehensive regulatory and compliance framework.
Article 5 mins
As U.S. employers balance costs with providing employees more value from their benefits, creating an annual healthcare enrollment process that includes more choice and guidance can accomplish both goals.
Article 10 mins
With many insurers reporting healthy profits in 2023, and in response to notable improvements in the reinsurance market, the insurance market in Q2 2024 remained growth-oriented.
Alert 3 mins
On July 19, 2024, the CrowdStrike outage became one of the largest IT events in history, impacting businesses and customers around the world. Leaders now have an opportunity to reexamine technology dependencies and business continuity plans to mitigate similar risks in future.
Article 6 mins
Insurers are some of the world’s largest institutional investors. Recognising their crucial role in driving the global climate transition, they should identify and analyse climate-related risks and opportunities to improve long-term risk-adjusted returns.
Article 7 mins
The global CrowdStrike IT outage demonstrated that even non-malicious cyber incidents may have serious repercussions. Events like these serve as a wake-up call for businesses to review their cyber resilience and be prepared for more significant incidents in the future.
Article 4 mins
More global benefits professionals are aligning benefit strategy to an employer’s identity and values.
Alert 10 mins
CrowdStrike, a global cybersecurity firm, released an update for its Falcon sensor, which caused system crashes on Microsoft Windows systems globally.
Article 8 mins
Cyber incidents continue to grow in frequency and severity, especially as new technology emerges. While D&O and cyber liability policies offer distinct coverage differences, terms need to be carefully structured to avoid potential gaps.
Article 6 mins
Insurers are venturing into the thriving digital landscape of the Metaverse, covering virtual assets, safeguarding intellectual property, and protecting the wellbeing of users and avatars. With this evolution, comes new challenges and the unique opportunity to shape the future of insurance.
Article 10 mins
Record-warm Atlantic Ocean temperatures and a shift to La Niña conditions have led forecasters to predict an extremely active Atlantic hurricane season in 2024. Learn how to build business resilience to mitigate risk for hurricane-prone properties.
Alert 7 mins
The U.S. Supreme Court has changed the way laws are interpreted in the development of regulations. This change has the potential for far-reaching consequences for both regulatory agencies and employers.
Article 4 mins
Overview of the current trade credit insurance market and outlook on trend developments.
Article 11 mins
The need to attract and retain high-quality talent in an environment of intense competition is at the forefront of professional services leaders’ minds.
Article 11 mins
Renewable energy is critical to meet net-zero targets, but as the industry grows, so do cyber attack surfaces. Learn how to prepare for emerging threats and support long-term ambitions.
Article 7 mins
As the scale and speed of interconnected risks escalate, innovative risk management strategies help FAB businesses build the resilience and agility needed to thrive.
Article 10 mins
The renewable energy sector is undergoing a sweeping transformation, as it plays a pivotal role in the challenge to achieve global net-zero goals. Attracting, upskilling and retaining talent is critical for sustainability.
Article 7 mins
Contractors in EMEA face an array of risks they must mitigate or transfer while managing the complexities inherent in major construction projects.
Article 12 mins
As more companies seek to reduce their carbon footprint, the renewable energy sector continues to grow, presenting both opportunities and red flags for organizations with renewable energy growth plans.
Article 6 mins
Proactive risk management and data-driven reshoring strategies can empower risk managers in logistics companies to navigate supply chain complexities with confidence.
Article 5 mins
As more companies become comfortable using captives and understanding the value they add, captives are likely to become further embedded into corporate risk strategies, regardless of market conditions.
Article 6 mins
Helping midsize organizations leverage key partnerships to address challenges around talent, market, regulatory compliance, and leveraging capital.
Article 12 mins
A rapid rise in medical plan costs is being driven in part by high-cost claimants — a high-risk group that disproportionately accounts for a large amount of healthcare costs. Here are strategies for addressing this issue.
Article 9 mins
Online benefits platforms are a key component of the overall employee value proposition. As employers maximize the ROI of their people spend, here are four tips which may assist with implementing a successful online benefits platform.
Article 8 mins
Efforts to bring more transparency to pay practices shine a light on benefits equity — and it’s not only about wages and salary.