SMBC

Brad Dunderman

Credit Risk Authority

The Importance of Choosing the Right Partners

I learned two very important lessons early in my career. The first lesson I learned as a new underwriter at FCIA, was to pick your partners carefully, including customers, brokers and banks.  A key part of my underwriting responsibilities was to recommend to the underwriting committee if a potential insured could reliably manage an FCIA credit insurance policy.  The second important lesson as a buyer of credit insurance at Motorola was to do the right thing, always.  This included being transparent in providing underwriting information to the insurers and, more importantly, working closely with the insurers when an obligor defaulted on a payment to minimize loss prior to a claim payment and to maximize recoveries after a claim was paid.  These lessons continue to guide my insurance placement strategy at SMBC.

Adapting to a Changing Risk Landscape

Both corporate and banking organizations have increased their interest in credit risk insurance given the economic, geopolitical and regulatory environment.  Corporates must closely manage obligor payment risk due to uncertainty caused by changing trade and tariff regimes that may materially impact their customers’ ability to pay.  Banks are also impacted by potentially increased non-payment risk, but the bigger impact on the banks is the regulatory capital requirements being driven by Basel III and, eventually, Basel IV.  The Basel regulatory requirements are encouraging banks to actively use credit risk insurance to manage their portfolios for aggregate limit and capital metrics.

Building Strong Partnerships for Complex Risk

The ability to structure complex solutions is highly dependent on the insurance broker, legal and insurance company relationships.  Insurance companies are very selective in choosing which clients they are willing to provide with their limited insurance capacity.  The insurance buyer must be transparent with providing information, be responsive to the insurers’ questions and be willing to educate the insurers through calls or direct meetings to ensure that they fully understand the risk that we are asking them to insure.  The broker must have a global footprint, full market access and the specialized resources needed to structure the insurance policies accordingly.  Finally, the legal relationship is critical in confirming that regulatory requirements are being met by the insurance policy.

Preparing for the Future of Credit Risk Insurance

The greatest influence on the credit risk insurance industry will be the final regulatory capital rules adopted for Basel III and Basel IV.  It’s still somewhat unclear what the final rules will look like, but the impact could be materially market changing at the end of the day.

The credit insurance industry is not a well-known financial industry career path for college or graduate students.  However, if a professional can find a role in an insurance company, reinsurance company or insurance broker then it is a very rewarding experience.  It is a dynamic market and the product offerings are constantly evolving to reflect the risk environment.  In my case, I was fortunate to have knowledgeable and generous mentors early in my career that shaped my understanding of the credit insurance industry and the way I approach the market.