What is the ITFA Unfunded Master Risk Participation Agreement (MRPA), how does it differ to the BAFT Funded MRPA and who uses it? Deepesh Patel, Editor at Trade Finance Global discussed with Silja Calac (Swiss Re), Head of Insurance Relations and Head of Treasury at ITFA, why the MRPA came about, what the 2019 changes mean for bank and non-bank funders and insurers.
Featuring: Silja Callac, Head of Insurance Relations and Head of Treasury, ITFA
Host: Deepesh Patel, Editor, Trade Finance Global
So, introduction, who are you? Where are you from? And what do you do?
My name is Silja Callac. I’m Swiss. I have worked all around the world and am at the moment, working for SwissRe in Frankfurt. But here today I’m talking to you in my function as a member of the board of ITFA, head of the Insurance Committee and Treasurer.
See our interview on trade credit insurance, Basel III and the implications of this, by SwissRe’s Davide Guidicelli.
Thank you. What is the importance of standardised documents for banks and insurers within trade finance?
That’s indeed an important question. I was just speaking on a panel at the “Knect 365, Insuring Short Term Trade Finance” conference. It was a really interesting panel on documentation when issuing insurance policies for banks, should it be standardized. We came to the conclusion yes, although there are still some hurdles, it is very important to standardize. Why? Because our market is a bespoke bilateral market and always tends to keep under the radar; thinking bad things will pass, but that is not a good idea in the present regulatory context: it is important that the regulator understands our business in order to take it appropriately into account and implement the right legislation. Trade Finance / Trade Credit Insurance is a very good business which helps the real economy. In addition, banks and insurance companies are very complementary to each other.
Standardisation of Insurance Documents
Great. And what has ITFA done to help standardisation?
Since the setup of the Insurance Committee in 2014, ITFA has immediately started with standardisation; as this is a strengths of ITFA being involved, for instance together with BAFT, in the Master Risk Participation Agreement. So ITFA is experienced in standardization projects and thought in order to help market players to understand each other better and thus to boost business we should do the same for insurance.
However, in the insurance world, it was a bit different. We met a lot of resistance at the beginning because banks were afraid, that they will lose their privileges, they have obtained through hard negotiated insurance policies. Insurers were afraid that the secrets of their policies will get known to the competition and brokers are always very protective of their own knowledge. So everybody was reluctant in the beginning to cooperate. And then there was one other issue: insurance is not just one product – there are many different insurance products, like political risk insurance, trade credit insurance, non-payment insurance. They’re completely different. This is why we started first in setting up insurance guidelines in 2016. These were updated in June 2019 in order to take into account the result of the PRA consultation.
Finally, at our conference in Budapest in September, we have launched a real standard document, which is the Unfunded ITFA Master Risk Participation Agreement.
Master Risk Participation Agreement Explained
So the MRPA – the Master Risk Participation Agreement, what is that?
An MRPA is a framework where two parties can share risk and which works normally on a reciprocal basis. The best known MRPA in the market is the BAFT MRPA.
BAFT versus ITFA MRPA
When ITFA set up the Surety MRPA, (the unfunded ITFA MRPA), it was strongly inspired by the BAFT MRPA. The Surety MRPA is also CRR compliant. It is also signed by two master parties but both can have affiliates join the MRPA. Basically, it’s very similar, but it has one major difference: as the name says it is unfunded. So it’s aimed at a slightly different audience than the BAFT MRPA. It is not a substitute to the BAFT MRPA, but a compliment. It is aimed mainly at insurance companies which are per definition participating on an unfunded basis. It has some further specificities: an important one is that you can take participation in facilities, guarantee facilities mainly, but also receivables finance facilities, That means that all the provisions of the single instruments under the facility can change, while the facility remains in place.
How to use the Master Risk Participation Agreement
Great. So if I’m a bank or I’m an insurer, how can I use the ITFA Unfunded MRPA?
If you are an ITFA member you can go on our website, into the membership area. There you will find under an insurance or under legal documentation the Surety MRPA as a word document. You can just print it out, have it vetted by your lawyers and use it. You will also find there a markup against the BAFT MRPA. Thus you can see what are the changes if you have for instance already the BAFT MRPA approved. You will also find guidelines which explain to you how the different clauses are used. And last but not least there is also the CRR legal opinion, which is actually in favour of all the members. You do not need to get any other Legal Confirmation for the CRR compliance of your document any longer.
Silja, thank you very much and what a great explanation of the key important parts of the MRPA. It’s been great to have you on Trade Finance Talks TV.