Society of Risk Management Consultants Charleston, SC October 23 rd -24th

1. Society of Risk Management Consultants Charleston, SC October 23rd-24th

2. Accounts Receivables: What’s your Risk Management Strategy • Foreign credit risks? • Price increases? • Credit = Top Line growth • Profitably • Protecting the bottom line

3. Traditional Credit Practices Executive Summary Exposure to potential default has traditionally been managed in one of four ways: • Collateral • Credit Information • Pricing • Run and Hide

4. The Current Trend • As firms seek to preserve financial and operational flexibility, collateral posting or pledging of assets has become less favorable vs. paying derivatives counterparties and Insurers to provide unsecured credit capacity to safely protect/grow the business. (Especially during price fluctuations)

5. Managing the Unexpected

6. Risk Mitigation Products –How and Why They are Used • Abnormal to the Catastrophic • Bird in hand is better than two in the bush • Top Line Growth = Increased Exposure • Are you their “Banker” • Have your Banker “show you the money” • Price Fluctuations

7. What A/R Risk Mitigation Products Are • Asset Security • Cash Flow Protection • Political Risk Protection • Risk Management

8. What Risk Mitigation Products Are Not • A credit management substitute • Routine bad-debt protection • Trade dispute protection

9. Risk Mitigation Products Seller’s Responsibility • Credit Insurance • Political Risk Products • Put Contracts • Factoring • Outsourcing Buyer’s Responsibility • LC’s

10. The Only Major Asset Left Unprotected Most companies protect against every other unpredictable event that has a high potential for loss….property, liability, business interruption….. But have no protection against excessive credit write-offs.

11. Why Protect/Hedge Accounts Receivable? • Accounts receivable typically represent more than 40% of a company’s assets.

12. Why Protect/Hedge Accounts Receivable • The accounts receivable asset is the most vulnerable to unexpected loss and business cycles

13. Loss Analysis • Assumptions: • $10 million in average outstanding A/R • 50, average number of active accounts • $100 million, estimated annual sales • 15%, variable gross profit margin • 10 basis points for a premium rate • 10 average number of receivable turns a year • 36.5 DSO (days sales outstanding) • $200,000, average account balance

14. Loss Analysis • Results • $200,000, average total accounts receivable exposure • $400,000, losses on just two average exposures per year • $2,666,667, is what your company will need in additional sales to make up the losses

15. Why Protect/Hedge Accounts Receivable? • Few companies can compete without extending credit.

16. Sales Analysis • Assumptions: • $10 million in average outstanding A/R • 50, average number of active accounts • $100 million, estimated annual sales • 15%, variable gross profit margin • 10 basis points for a premium rate • 10 average number of receivable turns a year • 36.5 DSO (days sales outstanding) • $200,000, average account balance

17. Sales Analysis • Results • $100,000, estimated tax deductible premium • $666,667, amount of incremental sales needed to pay for the cost of credit insurance • $66,667 incremental increase in credit lines across entire portfolio to pay for Credit Insurance • $1,333 in additional increase in credit lines on all 50 accounts to pay for Credit Insurance

18. How much or how little do you want to insure? Companies like a spread of risk but will consider segment or individual account coverage. • Whole Turnover / Portfolio Coverage • Portfolio Hedging / Catastrophic Excess of Loss • Segment of Accounts Coverage • Individual Account Coverage

19. The Basic Coverage Commercial Risk – Domestic/Export • Buyer Insolvency • Protracted Default • Non Acceptance • Contract Frustration Political Risk – Export • Inability to obtain hard currency • Changes in Import/Export regulations • Contract frustration due to Act of War • Foreign government non-payment

20. How the CI Marketplace Has Evolved New Entrants Medium Term Political Only Stable Markets Commercial / Political Risk Short Term Credit Insurance Whole Turnover Cancelable Limited Discretionary Non-Cancelable Single Debtor Liberal Discretionary

21. What else has Changed • Pricing is much more flexible • Products can be customized to a much higher degree • New entrants into the market have created efficiencies. • Policy language has improved

22. Types of Insurance Coverage • Cancelable Limits – Carrier assists in monitoring accounts and provides warning and guidance in the event there is increased likelihood of default • Non-Cancelable Limits – Carrier will not cancel limits, but the action of the limit could cancel itself.

23. Things To Think About • Is your company looking to grow sales? • Have you introduced any new product lines? • Are you selling Internationally? • Do you use Receivables as part of your borrowing base collateral? • Have you had bad debt losses? • Do you feel sales are being lost because of restrictive credit limits? • Do you need more resources in your Credit Department? Do you have a Credit Department?

24. One Source Products • Credit Insurance • Put Contracts • Political Risk insurance • Outsourcing • Collections • Factoring

25. Benefits of Dealing with One Source • Unique Sales Approach • Local Sales and Service • Provider Interaction (bringing experts to the table) • Relationship Levels within Providers • Wide Array of Specialties Within Team • International Network Strategic Alliances

26. Contact: Eric Voegtle One Source Risk Management and Funding 866.463.4741 ext. 7068 Cell: 860.480.4003 • www.tradecreditinsurance.wordpress.com • www.onesourcerm.com eric@onesourcerm.com