Page 1
advertisement
Page 1 ALTERNATIVE METHODS FOR RISK TRANSFER within a Standard Risk Management Process 10 September 2008 2 Jesse O. Franklin IV Partner, K&L Gates, Seattle Office Construction law consulting and litigation Architects Engineers General Contractors Owners (Public and Private) Subcontractors General business litigation Arbitration – International and Domestic Commercial Litigation 3 Standard Risk Management Components Risk Identification Risk Assessment Risk Mitigation Risk Financing Risk Review & Monitoring 4 5 6 7 Risk Transfer Mechanisms Non-Insurance Risk Transfer Mechanisms Insurance Risk Transfer Mechanisms Risk Financing Alternatives 8 Non-Insurance Risk Transfer Mechanisms Contractual Risk Transfer Mechanisms Allocation by written agreement Indemnification Hold Harmless Agreements Dispute Resolution Provisions Others 9 R. Suzen Shaw, CRP, ARM, CRIS, CPIW Senior Risk Manager, Microsoft Worldwide Operations 30 Years Experience in Risk and Insurance Management Risk Management Enterprise Risk Management Operational Risk Management Commercial Insurance Industry Risk Consulting Insurance Brokerage Insurance Underwriting Safety and Loss Control Loss Adjusting 10 11 Insurance Risk Transfer Mechanisms Traditional Insurance/Surety Products Performance Bonds Workers’ Compensation /Employers Liability General Liability Builders Risk Time Element - AKA: Business Interruption (BI) Dependent Time Element - AKA : Contingent BI Political Risk 12 Political Risks Consequential loss arising from the arbitrary acts of a sovereign government, including: Confiscation Expropriation Nationalization Forced abandonment and divestiture Selective discrimination Embargo and license cancellation Strikes, Riots, and Civil Commotion War, Political violence, and Terrorism 13 Political Risks – Major Underwriters ACE AIG Atradius Chubb Coface London MIGA OPIC QBE 14 Political Risks – Major Underwriters ACE AIG Atradius Chubb Coface London MIGA - Multilateral Investment Guarantee Agency OPIC QBE 15 Srilal Perera, Chief Counsel, MIGA Extensive experience working with multilateral organizations such as the Colombo Plan, UNDP, and the World Bank. 1986–1989 Legal Counsel to the President of the Iran–United States Claims Tribunal in the Hague LLB Masters in International Affairs - specialization in international law and international economics PhD - specialization in International Law and International Relations Executive Development Program (EDP) at the Harvard University Adjunct Professor of Law, Washington College of Law of the American University, Washington D.C. 16 Anthony Nolan Partner, K&L Gates, New York Office Specializes in – Structured products Derivatives Domestic and cross-border securitization Broad experience in synthetic risk transfers Has represented – Issuers, underwriters, servicers, bond insurers and others in a wide variety of whole-loan sales and asset-backed securities issuances 17 Risk Financing Alternatives Credit Derivatives Documentation Settlement Use in Hedging Risk 18 ISDA: Documentation Architecture 1992 (or 2002) Master Agreement •Governs legal and credit relationship between the parties •Includes representations, events of default/termination events, covenants •Incorporates schedule and confirmation Credit Support Documents Schedule •1994 Credit Support Annex (New York law) •1995 Credit Support Annex (Transfer-English law) •1995 Credit Support Deed (Security Interest-English law) •1995 Credit Support Annex (Japanese law) •2001 ISDA Margin Supplement (not much used) •Makes elections and changes to standard provisions •Incorporates credit support annex Definitions Confirmations •Incorporate Definitions •Specify economic terms of each Transaction •Include Transaction-specific modifications •ISDA PAUG Confirmation Templates •Incorporate definitions 2003 Credit Derivatives Definitions (+ 2003 – 2006 supps) 2002 Equity Derivatives Definitions 2000 Definitions 1998 Euro Definitions 1997 Bullion Definitions 1997 Gov’t Bond Option Definitions 1993 Commodity Derivatives Definitions (+ 2000 Supp.) 19 Credit Default Swaps An agreement whereby one party pays the other a fixed periodic payment for the specified life of the agreement. The other party makes no payments unless a specified credit event occurs: Reference Entity or Reference Obligation Fixed Fee (in bps per period) Protection Buyer Protection Seller Contingent Payment upon “Credit Event” 20 Credit Default Swaps Credit events for corporate/sovereign CDS: Bankruptcy Failure to Pay Obligation Default / Acceleration Restructuring Repudiation / Moratorium Extension periods Grace Period Extension Repudiation/Moratorium Extension Restructuring options affect deliverable obligations 21 Physical Settlement Timeline Credit event must occur no later than 12:59PM GMT on Scheduled Termination Date •Seller may buy-in “Bonds”. • Buyer must certify it used reasonable efforts to obtain consents to Deliver Loans, and Buyer may Deliver alternative instruments. •Credit Event Notice •Notice of Publicly Available Information” Settlement Fallbacks Start Event Determination Date > <= 14 CD after •Scheduled Termination Date, •Grace Period Extension Date or •Repudiation/Moratorium • Extension Date Physical Settlement Date NoPS > <= 30 CD, subject to any BD convention Cut-off (Eur/Asia) > Eur/Asia = 30BD NA <=30BD > •5BD > > •60BD Physical Settlement Period 22 Cash Settlement Timeline Credit event must occur no later than 12:59PM GMT on Scheduled Termination Date •Credit Event Notice •Notice of Publicly Available Information” Cash Settlement Date Determine Final Price 1st Valuation Date Event Determination Date > <= 14 CD after •Scheduled Termination Date, •Grace Period Extension Date or •Repudiation/Moratorium Extension Date > >=5 BD Nth Valuation Date > 5 BD between quotations > As soon as reasonably practicable > •3BD 23 Q&A 24
