conference & convention enabling the next generation of networks & services Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Shota Masuda Submarine Networks Division NEC Corporation 1
conference & convention enabling the next generation of networks & services Presenter Profile Shota Masuda graduated KEIO University in 1989 with a Bachelors Degree of Law, and started his twenty-one year career with NEC Corporation. His entry into Telecommunications started with international sales looking over India, Nepal, Bhutan and later on the Thailand market. He then moved on to a role creating Project Finance and managing Credit Risks. Later on, he became involved in sales of Shota Masuda Submarine Cable Systems for a few years, but Senior Manager was called back to Risk Management with the Submarine Network Division burst of the IT bubble. During the crisis, he clear NEC Corporation enormous amounts of bad claims, including ✉ smasuda@da.jp.nec.com several Chapter 11 cases. He is now back in the ☎ +81 3 3454 1111 Submarine Cable industry, responsibilities include among others, Risk Management. Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 2 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services 1. So, Where Are We? Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 3 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Ad Hoc Consortiums Mostly National Flag Carriers Strong Support from Respective Governments Similar Credit Risk Profiles (synonymous to Sovereign) Payment Risk : More or less “Equal” in “Size” & “Quality” Managing Credit Risk was relatively “Easier” than today Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 4 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services and Things Changed…. Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 5 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services 2. Consortium Contracts Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 6 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Consortiums of Today Entrance of Profit Seeking Private Carriers Less Support from Respective Governments Diversity of Credit Risk Profiles (Difference in Size / Quality) Managing Credit Risk: Extremely complex to Balance Many Challenges which did not exist before Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 7 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services 3. Managing Risk with Insurance Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 8 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Documentary Credit Instrument Purchaser Supplier Purchaser Supply Contract Supplier Supply Contract Collateral Collateral Fee Fee Letter of Credit Letter of Credit Bank Bank
conference & convention enabling the next generation of networks & services Manage Payment Risk by Insurance Purchaser Purchaser Supplier Supplier Supply Contract Supply Contract Instrument to hedge Non-Payment Premium Premium Risk Cover Risk Cover Risk of a certain Purchaser NEXI / Payment Insurance are not All-Mighty Private Carriers must have a sound Financial History Insurance Insurance Spin-Off Subs to limit Risk Exposure Company Company are frequently Non-Insurable
conference & convention enabling the next generation of networks & services 4. So, What is the Real Risk? Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 11 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Moody’s Cumulative Default Ratio Investment grade “Baa” and above Speculative grade “Ba” and below Credit Risk Profile significantly different Telecom is not immune to payment defaults Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 12 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services 5. So, What Should We Do? Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 13 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services So, What Can Be Done? Joint and Several Several and Not Joint Weight is Shared Different Weight Burden Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 14 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services 6. Let’s Go Captive! Consortium Contracts Captive Techniques for Managing the Diverse Credit Risk Profiles Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 15 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Frequency and Severity Insurance Insurable (Submarine Cable) Un-Available Severity Low Frequency High Frequency Low Frequency High Frequency High Severity High Severity High Severity High Severity Low Frequency High Frequency High Frequency Low Severity Low Severity Low Severity Insurance Insurable (Home/Car…) Not Required Frequency Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 16 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services 8 Good Reasons to go Captive! Reduce and Stabilize Costs over the Long-Term Reduce reliance on Commercial Insurance Enable Control of Underwriting, deciding Premium Rates & more Control over Claim Settlements Provide Coverage to Subsidiaries and Non-Insurables Recapture Investment Income and Accelerate Cash Flows Enable to take advantage of Insurance Accounting (tax incentives) and favorable regulations Increase Risk Coverage beyond conventional schemes to cover Innovative Deals and Structures Enables the Investors of Captive to receive Profit Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 17 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Purchaser Supplier Purchaser Supply Contract Supplier Supply Contract m m r r E u E u e e D D i i q q v v m m i i o o v u u v e C C i i e i i d d t t r r y y k k e P P e s s n n i i R R d d Captive Captive Insurance Insurance Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 18 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Food For Thought ! Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 19 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
conference & convention enabling the next generation of networks & services Visit us at http://www.nec.com/submarine/ Consortium Contracts - Captive Techniques for Managing the Diverse Credit Risk Profiles 20 Shota Masuda, Senior Manager, Submarine Networks Division, NEC Corporation
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