Alternative Risk Transfer
The alternative risk transfer market for credit and trade related risks and financing continues to develop with some solutions like securitization and credit default swaps becoming more established and main stream. Here are some of these sophisticated alternative risk transfer products that can be used as part of your trade risk management program in isolation or alongside another solution.
Excess credit insurance.
Can be used to increase the capacity of your overall credit insurance policy or increase the cover on specific large or higher risk customers.
Credit default swaps.
Have evolved from writing cover on specific debtors based on an underlying publicly traded debt instrument to a writing cover based on the underlying trade receivable outstanding. This is trade credit default swap is usually structured so that if your customer files a court restructuring or bankruptcy, the underlying receivable is exchanged for the original amount owed by the customer.
Accounts receivable put contracts.
These operate similar to the trade credit default swap where client has
the right to put the receivable back to the writer in certain default
circumstances at the face value of the outstanding receivable up to a
maximum amount.
Receivable Purchase Agreements.
This is similar to securitization and factoring, where receivables along
with the associated credit risk are sold on a bulk basis once or a number of
times a year.
Credit guaranties.
Highly rated mono-line guaranty companies can be used to provide guaranties or wraps for securitization programs and may be more suitable than traditional credit insurance for specialized credit risk situations where the receivable resembles a financial instrument or the receivable is not the result of the typical trading of goods and services.