credit lgd study: lgd sub- committee general update · of 2 years before being used in the study....

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Credit LGD Study: LGD Sub- Committee General Update

• LGD Sub Committee, 12 May 2020, Conf Call

• LGD Workstream Members

PERILS AGICISA LGD Sub-Conm Meeting 2020Slide 2

Agenda

► Welcome and Introduction – Dietmar Petroll/ Rob Nijhout/ Feten Mollinier

► General Update & Organisational – Feten Mollinier

► Data Collection Process & Project Status – Feten Mollinier

► WS 1- Product Design (lead Tilman Lange) / LGD Review Committee

► LGD Study Report: content - Karin van de Put

► LGD Technical Aspects - Tilman Lange/ Francisco Pina Pena/ Jean-Guillaume Zanotti

► WS 3 & 4 – Legal & IT

► Legal framework and IT setup / Subscription and fee scheme

► LGD Organisational Setup & Next steps

► Miscellaneous- Q&A - All


Welcome and Introduction

• Welcome all LGD Sub- Committee Members


Welcome and General Update

► The LGD Workstreams have continuously met in order to move on with the project.

► Monthly WS 1 (Product Design) Workshops, with rotation of location:

► in VFL offices in Leipzig, in Atradius offices in Amsterdam, in Euler Hermes offices in Paris, in Sompo offices in Zurich, in Swiss Re offices in Zurich, in AXA offices in Zurich/Oerlikon and in PERILS offices in Zurich

► Next WS 1 Workshops planned: 18 May

► Regular LGD Review Committee Meetings (weekly/ bi-weekly and ad-hoc)

► Regular LGD Project Steering Board Meetings (bi-monthly)


LGD Project: Objectives

► ICISA and PERILS agreed to resume the production of the LGD Study (Loss Given Default) in order to respond to the (re)insurance industry-wide demand

► The former Credit & Surety PML working group has been managing a series of LGD studies (2005 – 2011) for trade credit which have proven very beneficial for the industry

► Objectives of the LGD Study:

► To produce a high-quality LGD Study for Trade Credit Industry after a gap in years

► Market share > 50%

► Goal: keep efforts for data providing companies at a minimum

► Possible applications of the LGD Study include:

▪ Benchmarking company LGD vs market LGD

▪ Enhance Internal model validation

▪ Influence reinsurance structuring and pricing

▪ Lobbying with regulators (EIPOA etc) among other use cases


Why can PERILS support the ICISA

► Recognised in the global in/reinsurance industry as independent source of insurance data

► Collects and validates company data; distributes (anonymised) market data

► Has a well-defined legal, IT and compliance framework in place

► Knows how to deal with confidentiality

► Has a pre-defined reporting process

► Allows an efficient and professional collection and storage of industry exposure and loss data and ensures long term continuity

► Is a recognised reporting agency (for cat bonds, ILW)

► Target groups: re/insurers, brokers, modellers, funds, academia, regulators (Overlap in the user communities ICISA / PERILS)

► Collaboration with Versicherungsforen Leipzig (VFL) for data analytics and in-depth actuarial studies; possibility of special reports

► In 2019 PERILS celebrates its 10th anniversary of what has proved a very successful industry initiative based on a collaborative approach

LGD Organisational 1/2


LGD Organisational 2/2

► Governance/roles and responsibilities within the LGD Project Setup were approved by the LGD Project Steering Board in September 2019

► With immediate effect this meant:

► Continuation of LGD Workstream Workshops on a monthly/ bi- monthly basis

► Continuation of LGD Steering Board Meeting structure

► New creation of LGD Review Committee, consisting of the primary insurers of the LGD Workstreams (5); kick off on 17.12.19

► review, evaluate and discuss the delivered data on an aggregated basis in order to prepare the LGD Study content

► on a (bi-) monthly basis starting 4 weeks after data call deadline until study release

► Full data analysis and request for approval


PERILS Team

► Incorporated in January 2009 in Zurich, Switzerland

► 10 re/insurers with 10% share each

► Not-for-profit

► PERILS mission

► Improve Cat risk assessment

► Facilitate industry-loss-based risk transfer

PERILS AG, Marktgasse 3,

8001 Zurich, Switzerland

WWW.PERILS.ORG

[email protected], +41 44 256 8100

For the Industry By the Industry

PERILS Australia

100 Harris Street

Pyrmont, Sydney, NSW 2009, Australia

[email protected], +61 438 704 098


LGD Steering Board (unchanged)

► Credit LGD Project Steering Board (PSB)

► decision body, promote participation, funding by ICISA

► Members:

ICISA (Rob Nijhout),

Atradius (Tilman Lange),

AXIS (Andrew Hawson),

COFACE (Jean-Guillaume Zanotti),

Credendo (Jérôme Lokasso),

SCOR (Doris Egli- Schaufelberger),

Swiss Re (Dietmar Petroll),

Versicherungsforen Leipzig (Justus Luecke, Karin Van de Put);

PERILS (Feten Mollinier/ Project Manager, Eduard Held/ Advisor)

► Frequency: Bi-monthly Conf Calls/ Meetings

► PERILS: data collection, first validation, data ownership, project and process management, relationship management (data providers, subscribers)

► Versicherungsforen Leipzig: provide in-depth actuarial analysis, process management


LGD Workstream 1- Product Design (unchanged)

► Regular monthly Credit LGD Workstream 1 – Product Design Workshops

► Current members (both, re/insurers):

Atradius (Tilman Lange/ Lead, Dafydd Morgan)

Axa (Guadalupe Quindos),

Coface (Jean- Guillaume Zanotti),


Euler Hermes (Francisco Pina Pena, Florim Amidi),

Munich Re (Jianing Zhang),

Sompo Intl. (Andreas Grieder),

Swiss Re (Marius Fischer),

Versicherungsforen Leipzig (Justus Luecke, Karin Van de Put),


► Elaborate on content, definitions, possible changes to the methodology and the Data Collection Template.

► Impact Analysis was run with new methodologies on old / existing data available from 2005- 2011 (no additional workload for data provider); final validation and approval from Workstream and Project Steering Board

► Regular close contact with our LGD Project Steering Board to obtain all requested approvals to move on.


LGD Review Committee (new)

► Regular bi/weekly LGD Review Committee Workshops

► Current members (insurers):

Atradius (Tilman Lange, Dafydd Morgan),

Axa (Guadalupe Quindos),

Coface (Jean- Guillaume Zanotti),


Euler Hermes (Francisco Pina Pena, Florim Amidi),

Versicherungsforen Leipzig (Justus Luecke, Karin Van de Put),


► review, evaluate and discuss the delivered data on an aggregated basis in order to prepare the LGD Study content (in terms of i.e. statistics, level of granularity/ segmentation etc.)

► structure and content of any data item, any report prior to publication and/or delivery to subscriber or any other party

► final validation of new dataset with approval from Workstream and Project Steering Board

► Regular close contact with LGD Workstream & Project Steering Board to obtain all requested approvals.


LGD Data Collection Process

02/202004/2019 Mid 05/2019End 11/2018

Approval by the Project

Steering Board

ICISA AM 19 Ams

Request for Data Call to PERILS

Initial Deadline for Data Delivery to PERILS

Release of the study to be shifted to H2 2020

Mid 07/2019

Extended Deadline

Data Delivery to PERILS

data received First LGD observation presented

Mid 08/2019Mid 06/2019

First LGD observation

from VFL presented

ICISA SM 19 Rome

03/2019 09/2019

Negotiations finished with various data provider for

1st study

ICISA meetings

11/2019

ICISA AM 20 Sevilla

09/2020Today

ICISA LGD Sub

Comm


LGD Project Status Update (as Feb 20)

# LGD Data Providers #

Contacted 19

Agreed 10

Declined 6

Outstanding 3

Data received by PERILS 10

Data transferred to VFL and processed 10

Delay in data delivery announced by DP 1

Data Provider Agreement signed 9

Database License signed 9

• to all 5 insurance companies of the LGD Workstream • to 14 other potential data providing companies➢ Initial Deadline mid-May 2019 -> deadline has been extended several times

PERILS AGICISA LGD Sub-Comm Meeting 2020Slide 15

WS 1 – Product Design /Review Committee


LGD Study Report: Content of study

► During the analysis the questions that came up were more operational rather than bugs or mistakes

► Overall data quality was good

► Draft of LGD Study Report and Data observations:

► Karin Van de Put (VFL)

► Sub-WS: Product Specification see Appendix (Marius Fischer/ Swiss Re)

► Input VFL


LGD Technical Aspects

► 1. option: ONE DATA FLOW: Claims and Exposure data are delivered in one file with the same time scope. In ‘Business as Usual’, this means for the Data Deliveries:

► Claims information of events notified on year Y-3

► This means that even the claim notified on 31 Dec (Y-3) will have a development of 2 years before being used in the study. Development of claims of “at least” 2 years is necessary to provide reliable/ stable results.

► Exposure information as End of Q4 of Y-4

► whole turnover portfolio data with claims occurred in 2015 and in 2016 and trade credit exposure EOY 2014- EOY 2017:

► Input LGD Review Committee Members

(Atradius/ Coface/ Euler Hermes)


LGD Technical Aspects

Methodology changes to past studies:

► 1st : No aggregation on parent level

► 2nd : New methodology for exposure

► 3rd : No matching across insurers

► 4th : New definition of default / relevant cases


WS 3&4 – Legal& IT


LGD Study: Status Legal Framework

► PERILS → Subscribers (non-data providing): Data Inhouse License Agreement (in progress)

► PERILS → Subscribers (data providing): Database License Agreement (done)

► PERILS → Credit Insurers: Data Provider Agreement (done)

► PERILS / ICISA → VFL: Impact Analysis (done)

► PERILS → VFL: LGD Annual Data Analysis (done)

► LGD Study can leverage PERILS’ proven and established legal framework


LGD Study: Status IT

► Data Providers can provide the data

► via upload on www.perils.org

► via email (excel-format)

► Subscribers and Data Providers will access the analysed data via www.perils.org

► LGD Study can leverage PERILS’ proven IT security and state-of-the-art monitoring and recovery procedures

► 8 data deliveries transferred via email (coded), 1 via PERILS portal, 1 via company’s portal

http://www.perils.org/

http://www.perils.org/


WS 3 – Subscription and Fee Scheme


LGD Subscription and Fee Scheme - Recap

► Consistent with PERILS’ existing fee scheme► fees need to cover PERILS’ costs

► fee scheme: simple, transparent, consistent

► data providing companies get access for free

► reinsurers, intermediaries and others pay subscription fees

► all users sign subscription license agreement

► Possible fee scheme for DB license (in CHF, p.a.)

The final fee amounts need to be confirmed

► Initial fee level will depend on number of (expected) subscribers

In-House Consulting

Large entity 15k 30k

Small entity 7.5k 15k


Credit LGD Study: Status/ Next Steps

All Workstreams involved

► Data Analysis / validation of complete dataset Ongoing

► VFL has regularly presented LGD data observations and assists in final validation& analysis

► Release LGD study, depending on validation progress, in H2 2020

► Provision of Data Inhouse License Agreement by PERILS beginning of June 20

► Sub WS: Product Specification/ Draft LGD Study ongoing

► Acquisition of (non-data-providing) subscribers beginning of June 20

► Next Project Steering Board Meeting planned for 6 July 20 tbc

► Next WS1 Workshops planned for 18 May 20/ 15 June 20 tbc

► Next LGD Sub - Committee meeting during ICISA’s Autumn Meetings 4 Sep 20 in Sevilla;

► Review/ Definition of content for next data collection, depending on validation progress, July/ Aug 20

► New loss data call from 2017/ Exposure data collection from EOY 2015 to EOY 2018 possibly Sep 20

► Acquisition of new data providers Sep 20


Miscellaneous

Q & A


Thank youfor your attentation


Appendix


Product Specification: The LGD for the credit insurance market

► 1.1 Primary Result:

► Empirical Distribution: Present distribution of the loss given default: provide histogram, empirical mean, empirical standard deviation and confidence intervals for the parameters

► Fitted Beta-Distribution: Fit beta-distribution to the empirical LGD-distribution: graphical visualization, provide the fitted shape parameters (use moment method and maximum likelihood estimation)

► 1.2 Breakdown of the LGD Estimate:

► Show the same results as for 1.1 for the following breakdowns:

► Breakdown LGD estimate per sector of defaulted buyer

► Breakdown LGD estimate per region of defaulted buyer

► Breakdown LGD estimate by type of insurer (large/small)

► Breakdown LGD estimate by Granted Limit bands

► Breakdown LGD estimate by legal form of buyer

credit lgd study: lgd sub- committee general update · of 2 years before being used in the study....

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