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Alastair Malcolm, founder and CEO of Faversham, England-based XS Reserve Ltd., is no stranger to innovation, having been at the forefront of the development of excess-of-loss credit insurance coverage some 30 years ago.
And Mr. Malcolm, who once built and flew his own plane and has an invention currently awaiting patent, recently created a new methodology for developing reserves for trade credit risk.
His product, XS Reserve, is a winner of 2016 Business Insurance Innovation Award.
XS Reserve enables buyers to make monthly payments into an account on the buyer's own books to build up reserves, but the underwriters — currently American International Group Inc. — will agree to pay the full agreed sum in the event of a defined loss from day one.
The full value of the reserve is available from the outset of the policy to be used as contingent liquidity supported by a rated insurance company, Mr. Malcolm said.
The buyer funds payments over an agreed period of up to three years, he said, and XS Reserve guarantees the funding of that reserve.
The coverage is sold as part of an excess-of-loss trade credit insurance cover and enables risk managers to transfer a risk that otherwise would be wholly self-insured, Mr. Malcolm said.
The risk is ideally suited to be handled via a captive insurance program, Mr. Malcolm said, and the XS Reserve product can help to establish and operate such a program.
The idea for the product was sparked in part because of the restrictions that banking rules, such as Basel III, place upon banks issuing credit with security.
XS Reserve enables the credit risk to be passed onto insurers — which are the risk takers, Mr. Malcolm said.
He said that, for example, a U.K. minerals company with receivables funded by a panel of banks used the product to give the banks security.
“The need for credit insurance is vital,” said Mr. Malcolm, and risk managers are becoming more involved in trade credit.
Every company carries the risk of bad debt impairment, Mr. Malcolm said, and most currently self-insure that risk though few currently use their captives for that, he said.
Mr. Malcolm said he hopes that XS Reserve will go some way to changing that.
Mr. Malcolm set up XS Reserve with David McKibbin who has had a 25-year career in insurance and reinsurance underwriting.
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