Lobby and Advocacy

EU level Playing Field

Background
Bank guarantees and guarantee/surety insurance are useful instruments as both of them can adequately guarantee the security of a public tender and the performance of security requirements, notably in the respective procurement laws of each country.
However, in some countries, surety companies do not have the possibility to issue bonds, and face the following difficulties:

- No appropriate wording in the EU legislation regarding the requirements of security and performance of security. Directives and tender documents very often refers to bank guarantees when describing security.
- No official reference list of suretyship insurance as exists in the banking sector.

This leads to various situations across the different European Member States, where banks and suretyship companies are treated differently. This does not allow for an appropriate EU level playing field, but in fact creates a distortion of competition.
With a view to this the Surety Committee Group has decided to initiate a strong lobbying action towards the Commission’s representatives early in 2006.

Statutes   
February/April 2006            Letter sent to the European Commission 
                                        representatives at DG Internal Market                       October 2006                     Meeting with the European Commission representatives
                                         from different DG
December 2006                  Meeting with DG Consumer representative

Documents ICISA Year 2006
6^th February                       Letter to Mr Karel Van Hulle, Head of Unit DG Internal
                                         Market (FILE 2006118)
10^th March                         Surety business in Hungary, presentation by Dr György
                                         Lampert (FILE 2006013)
11^th May                            Letter to Mr Ben Carr DG Internal Market (FILE 2006119)
4^th October                         Meeting report :Visit to DG Internal Market         
4^th October                         ICISA Presentation to the European Commission                                           (FILE 2006123)                                  
20^th October                       ICISA EU Level Playing Field Analysis by Andrée Ahano                                          (FILE 2006120) 
13^th November                    Call report: Action plan to be implemented                 
4^th December                      Meeting report: Visit to DG Consumer     
                                         (FILE 2006121)      
Legislation (links)
- Insurance Directive
- White Paper on Financial Services 2005-2010 consolidates the objectives of the directive
- Time Share Directive
- Waste Electrical and Electronic Equipment (WEEE)Directive
- http://ec.europa.eu/environment/waste/pdf/review_2002_96_ec_directive.pdf
- Supervision and control of shipments of waste

Moody’s Survey Bonds

Background
Moody’s issued a paper in August, seeking comment on rating framework for privately financed public infrastructure(PFI/PPP) projects.

In this paper, the  Moody’s proposed rating methodology gives sureties a lower weighting than bank guarantees (bank guarantees 100 % value vs. surety guarantee 50 % value).

Statutes ICISA Year 2006
September            Following the Moody’s paper release comments from the ICISA
                            Members
9^th October           Release of the International Surety Association position Paper
11^th December      Meeting between Moody’s and ISA representatives

Documents
8^th August            Moody’s position paper (FILE 2006124)
7^th September       ICISA Summary of the Moody’s paper and main points outlined
9^th September       ISA position paper
19^th September     ICISA Summary comments from the Members (FILE 2006125) 

Current Studies

PML Surety Study

Background
The goal of this study is to come up with Loss Given Default patterns for (designated) homogeneous (i.e. per homogeneous product, thus not necessarily per country!) classes of bonds.

The basic idea is that the LGD should provide a measure of the intrinsic amortisation/reduction of risk of a bond. In other words, the objective would be to study, on a per bond basis; the LGD as a function of the timing of default. Please note that this is the Underwriting Year point of view if you wish. For a book of bonds with different remaining times to Maturity, one arrives at the Calendar year view by evaluating the LGD pattern at the corresponding remaining times to Maturity and aggregate the associated “non amortised” Exposures. Only at that stage, possible collaterals are deducted to arrive at an (expected) net exposure for a given book of business at a specified point in time.   

The study will be limited to the construction industry in first instances. It will look at performance and maintenance bonds, and at a later stage maybe look into advance payment bonds.

A pilot study has in fact been concluded in January 2007 the results of which have been very promising and the group is in the course of bringing this initiative to the next stage.

Statutes ICISA Year 2006
10^th March             Presentation of the PML Study by Tobias Povel at the ICISA                               Surety Committee meeting
5^th October            C&S PML Working Group Meeting in Brussels
1^st November          Update of the PML study at the ICISA Surety Committee meeting
23^rd January           Surety PML Working group meeting in Munich with the
                             conclusion of the pilot study

Documents
- Presentation of the PML Study by Tobias Povel at the ICISA Surety Committee meeting (FILE 2006014)
- Meeting in Brussels: Status report
- Training Seminar in Munich: Presentation (FILE 2006122) 

Useful link
http://www.cs-pml.org/