Political Risk Insurance Provided Relief When A Large Invoice Went Unpaid

As Ronald A. Chisholm Limited conducted its regular business of shipping meat around the world, a completely unprecedented, high-profile international situation occurred — with the potential to have major financial ramifications. Thankfully, Chisholm had the foresight to secure a political risk credit insurance policy from Euler Hermes to protect against the unexpected and provide relief when large invoices go unpaid. 

Industry:

Food

Challenge:

Mitigate risk of conducting business in countries with volatile political situations

Policy Benefit:

Resolves large claims efficiently to prevent drain on financial resources

Challenge

Political risk is a fact of life for global businesses. When international affairs led Russia to impose an embargo on goods from Canada, Toronto-based food merchant Ronald A. Chisholm Limited found itself with millions of dollars in perishable meat shipments in route to a Russian market that would not allow them to be delivered. “We first thought that any meat already in transit would be allowed to go through, which is usually the case of an embargo,” said Chisholm COO Gregg Badger. In this case, however, the border was closed to these shipments. Chisholm had never faced a political risk event of this magnitude.

Fortunately, the company carries trade credit insurance and political risk insurance coverage. Now it was time to see if these policies would fulfill their promise. The Russian embargo had created a situation that could truly imperil Chisholm’s business. “We were looking at a major loss,” said Badger.

“We first thought that any meat already in transit would be allowed to go through, which is usually the case of an embargo. In this case, the border was closed to these shipments." - Chisholm, COO Gregg Badger.

Solution

Chisholm contacted Euler Hermes immediately after learning of the embargo and its impact on the company’s meat shipments. Working with Euler Hermes, Chisholm was able to quantify the value of the products involved and develop a strategy to mitigate the overall loss. Chisholm and Euler Hermes collaborated closely to determine new pricing for the shipments that could be sold in other countries and the options Chisholm could consider to recover its losses.

“We could have waited to see if the price would come back up, but then we would have had financing costs to deal with,” said Badger. “We worked with Euler Hermes and decided collectively to sell all the meat right away for 30% less than the revenue we expected from our customers in Russia.” Chisholm also worked to reduce the shipping costs to reroute the meat in order to lower the amount of its final claim to Euler Hermes.

Results

The final payment Chisholm received from Euler Hermes, which represented about one-third of its total political risk coverage, saved the company a significant amount of equity that would otherwise have been wiped out.

“We came out well ahead in what turned out to be a worst-case scenario,” said Badger. “Euler Hermes paid the claim to the penny of what we calculated and expected.” In addition to covering the financial loss, this insurance coverage allows Chisholm to maintain its strong position with its banks and demonstrate how political risk trade credit insurance truly works. “Euler Hermes wants us to succeed and thrive in our industry as much as we do,” he said.