I


t is essential for any business to have effective corporate banking services at its disposal. But while insurers and reinsurers require the same basic services as any other business, banks will often tailor their corporate


banking services to meet the specifi c needs of their insurance clients. “While our corporate services are available to a wide variety of industries,


our approach has always been to deliver to the client’s need, rather than to drive an internal product agenda,” says Pinar Kocayusufpasaoglu, head of insurance sector, client coverage, fi nancial institutions UK at Royal Bank of Scotland (RBS).


“In our approach to other industries, as well as insurance, we have


specialist people, including relationship managers and product partners, who understand the dynamics and requirements of the sectors we cover. We will always try to adapt to the needs of that sector.”


One of the most important aspects of corporate banking to insurers


and reinsurers is the ability to access cash quickly without disturbing investments.


“Incoming premium income will usually be invested to maximise


investment returns,” says Louis Tucker, director and head of corporate strategy and asset management at insurer Barbican. “But because of the nature of our business, cash fl ows are very unpredictable—you don’t know when there will be a catastrophe and when you will need to make claim payments. One service that banks provide is a revolving credit facility, much like an overdraft, which, if required, allows us to draw on it for short-term cash fl ow requirements.”


Lending money to the insurance industry isn’t regarded as too risky, according to Andy Reid, head of non bank fi nancial institutions at Barclays Corporate.


“We are very comfortable in this space,” Reid says. “We have some of


the best industry bankers, who understand the management teams and relevant subsectors. They know where we are comfortable increasing or entering into new loans within this industry.


“Insurance and reinsurance is a well-managed sector. Once we know the management teams and feel comfortable with them, we feel comfortable in extending capital. For example, in 2011, we have underwritten over a £1 billion of capital into this sector. So the vanilla loan product is a key component of what we do.”


Kocayusufpasaoglu at RBS agrees. She says that this is a service she feels


comfortable providing to insurers and reinsurers. “We have the balance sheet availability and credit appetite to support our clients through debt fi nancing, both on a bilateral or syndicated basis.”


When it comes to cash management, it is important that banks allow


insurers and reinsurers to maximise both their liquidity and their investment returns, says Tucker.


“As an insurance company, you need a fair amount of liquidity for claims


payment and working capital purposes,” he says. “You may need access to cash fairly quickly, so the best place to have that is in cash accounts.


“We hold cash in both current accounts and deposit accounts. In


order to minimise concentration risk, we use different banks and banks whose holding companies are based in different countries. We try to maximise the investment return on those deposit accounts by having the maximum duration we can, while bearing in mind the liquidity needs of the business.


“Typically, we will put cash on deposit for six months, but we will have


six of these accounts, one maturing every month. For example, if we put £5 million in a deposit account in January for six months and then another £5 million in February for six months, and so on, we can keep the liquidity but maximise the investment return.”


This is a need that banks are more than willing to accommodate, according to Reid.


“A good example is an innovative deposit product that allows the client


to draw down cash instantly on account. As we see a lot of insurance companies at the start the season with a lot of capital, and as they require the cash for acquisition or premium redemptions, the deposit value potentially drops during the year, but if they do not need to use the liquidity over that period, the product is designed to make sure that we can give them a healthy return based on a behavioural life.”


Insurers and reinsurers also often require support on foreign exchange (FX) transactions, says Tucker.


“As a UK-based insurer, the majority of our expenses are sterling-


denominated, but the majority of our premium income is in dollars. The result is that you have an offset there, and so FX is a major issue,” he says.


“Also, you may be getting dollar premium income in, but you might not


necessarily be paying those claims for anything up to 10 years. So if your dollar income comes in and you spend all of your dollars, but then the dollar strengthens hugely, it means that you’ve got to convert your sterling into dollars to pay those claims, which could then create FX losses.”


Given the complex nature of the services that the insurance sector


requires, there are many considerations that companies will make when selecting which banks to work with.


“We periodically check the credit rating of the bank we use,” says


Martyn Hughes, fi nance director at insurance brokers, CBG Group. “Being FSA-regulated we are obliged to do this and use a rating agency


such as Moody’s to ensure that they are a solvent bank. We are not permitted to use risky investments to house client money and there is a very strict list of investments that we can use.”


In order to stay competitive when seeking clients from the insurance


market, banks must also stay one step ahead when it comes to regulatory changes that might affect their clients, argues Luigi Lubelli, deputy general manager, fi nance at MAPFRE.


“Going forward, we would expect banks to provide solutions to optimise our capital management when Solvency II comes into force,” he says.


September 2011 | INTELLIGENT INSURER | 27


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