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Automation Of The Guarantee And Deposit Processes

Processes

E-Cautio, a Luxembourg-based InsurTech company and provider of Platform-as-a-Service (PaaS) solutions, announced its new partnership with SCHUMANN.

In the future, E-Cautio will use the CAM Surety software from SCHUMANN, the technology provider in the areas of credit and guarantee insurance. With CAM Surety, a SaaS solution, E-Cautio enables small and medium-sized companies to remain competitive by digitizing the entire process of guarantees and deposits and to offer guarantee insurance as a SaaS solution.

By automating the entire process of warranties and sureties such as performance guarantees or completion guarantees, small and medium-sized enterprises in Luxembourg and the rest of Europe accelerate their digital transformation. “They significantly improve the quality and efficiency of their operations, while at the same time reducing the risk of human error. In addition, the digital process includes customer onboarding, KYC, risk analysis, customer and claims management”, says a press release of SCHUMANN.

The new strategic partnership combines the CAM Surety software from SCHUMANN with the market expertise of E-Cautio. Small and medium-sized businesses – from MGAs (Managing General Agents) to insurance brokers to insurance companies and banks can be equipped with efficient, state-of-the-art technology tools. In a sector that demands ever more operational agility and efficiency, companies are supported to be innovative and to grow.

FFP2 Mask

React Flexibly to Requirements With FFP2 Masks

Processes, Read

Resilience in crisis situations and flexibility distinguish companies with good ratings.

As a result of the COVID-19 pandemic, the core business of many industries continues to be severely affected. However, many medium-sized companies have reacted flexibly to the new conditions and adapted their production to the circumstances.

An example for this is EPG Pausa GmbH from Stolfig Group. The company started the production of FFP2 masks at the Eichelhardt site and was able to conclude a major contract with the German Federal Government and the state of Rhineland-Palatinate in December 2020. The basis for this success was the EU type examination certification of the products by TÜV Rheinland Intercert Kft.

The Stolfig Group is a development partner of the automotive industry and a first-tier supplier (Tier One). The first wave of the pandemic had already severely affected the order situation, freeing up production capacity.. After the German Federal Government also called on local producers to support them in fighting the pandemic, the Stolfig Group seized the opportunity to build up another mainstay during the crisis. The changeover to a textile product, of course, presented the automotive supplier with a number of challenges. EPG Pausa first had to find suitable production machines, suppliers for the basic materials and qualified staff.

“TÜV Rheinland is an excellent partner in our opinion. The collaboration was highly professional and the communication was always fast and courteous. Despite the holidays at the turn of the year, the certification was driven forward and the audits were conducted at record time in international collaboration.”

Wei Hong, Managing Director of EPG Pausa GmbH

Certification was also more time-consuming than initially anticipated, as FFP2 masks fall under the Personal Protective Equipment Regulation 2016/425 and must also comply with EN149:2001+A1:2009. In partnership with TÜV Rheinland, everything finally went smoothly and quickly, as Managing Director Wei Hong confirmed. The company is now occupied with the distribution and production of larger margins of their new protective masks.

Meanwhile, EPG Pausa is already working on masks for children. Their development must be based on the specific dimensions of children, so that the masks ultimately meet the requirements for safety and wearing comfort. TÜV Rheinland will also carry out the testing of these products.

TÜV Rheinland has tested the masks of EPG Pausa GmbH according to the regulation 2016/425 for Personal Protective Equipment as well as the standard EN149: 2001 +A1: 2009 and was subsequently able to issue the corresponding EU type examination certificate. Now, the company can attach the CE marking to its FFP masks and offer them as Personal Protective Equipment on the European market.

During the pandemic, masks with forged certification marks have repeatedly come onto the market. TÜV Rheinland is an internationally renowned testing service provider and a strong partner for EPG Pausa GmbH and Stolfig Group. The EU’s “New Approach Notified and Designated Organisations” has designated TÜV Rheinland InterCert for the certification of particle-filtering masks. By means of their international network of experts and test laboratories, TÜV Rheinland enables a supplier like EPG Pausa GmbH to test their products quickly and efficiently, since TÜV Rheinland has decades of experience in testing Personal Protective Equipment.

Requested Credit Ratings Process

Procedures, Processes, Read

A credit ratings of a Recognized Credit Rating Agency is usually the result of an issuer requested credit ratings process. In the following, you get a quick overview on how the process looks like at leading Credit Rating Agencies. Please note that there may be special features due to different regulations in different jurisdictions. Please contact us if you have any questions or notice any deviations in your rating process.

A requested credit ratings process usually results in the dissemination of the rating found. In contrast, un unpublished credit rating may include a preliminary rating phase in which the preliminary rating is based upon preliminary information and conditioned upon one or more assumptions. The Credit Rating Agency expresses its credit ratings using the long-term, short-term or the issuer financial strength rating scales.

Alternatively, a Credit Rating Agency may initiate rating coverage on an unsolicited basis, where sufficient public information is available, to broaden industry coverage or provide insight to market participants.

Pre-Engagement

The rating process usually begins when an issuer, sponsor/arranger or underwriter (or, in any of these cases, its agent) contacts a member of Credit Rating Agencies’ business and relationship management group with a request to engage the Credit Rating Agency to provide a credit rating. The rating relationship begins with an introductory meeting or teleconference call. The purpose of this meeting is to introduce the Credit Rating Agency and to provide a high-level description of the ratings process and products. After the discussion, when the issuing organization is ready to move forward, it will request the appropriate ratings application from the Credit Rating Agency. Once the issuer has signed and returned this application, the Credit Rating Agency will begin the ratings process.

Analytical Team Assigned

The analyst or analysts assigned to a particular issuer or obligation (“lead analyst” or “responsible rating analyst”) begins the credit analysis by collecting relevant information on the Issuer or obligation from publicly available sources. Following the receipt of the request for a credit rating, analysts are selected, taking into account the industry and the type of the debt to be rated, among other factors.

Collection of Internal and Public Information

The Issuer will be asked to provide relevant financial and non-financial information. The precise list of information may vary according to the sector and market information. Analysts base their rating analysis on a thorough review of information known to them and believed to be relevant to the analysis and the rating decision in accordance with the applicable criteria. The rating process incorporates information provided directly to the Credit Rating Agency by the issuer, arranger/sponsor or other third party, such as published company financial & operational statistics, reports filed with regulatory agencies, industry and economic reports as well as other data and insights

Request of Non-Public Information

Requested non-public information can include information provided directly by the issuer, arranger, sponsor or other involved party. Confidential background data, forecasts and other communications will be gathered by the Credit Rating Agency’s analytical team. The team conducting the analysis will determine if sufficient information is available to form a view on the creditworthiness of the issuer.

Prepare Detailed Questionnaire

The analytical team conducting the analysis will prepare a detailed questionnaire for the issuer’s management team, which typically involves to prepare main topics for discussion and key questions and to establish detailed agenda to ensure productive dialogue.

Interaction with Issuer

In most cases for solicited credit ratings, the issuer’s management or transaction sponsor participates in the ratings process via in-person management and treasury meetings, on-site visits, teleconferences and other correspondence. The lead analyst and the team conduct a detailed discussion with arranger, management team or sponsor to understand the business and convey the initial thoughts of the analytical team. Analysts also consider macroeconomic data, market events and any other information deemed relevant for rating analysis, such as data from an issuer’s peers, data provided by other analytical groups within the Credit Rating Agency or publicly available information. Analysts engage in frank discussions with Issuers, or their agents or representatives, about their ratings, including credit strengths and weaknesses and trends in their industries.

Analysis

Once information has been gathered, the lead analyst will conduct the analysis of the issuer or obligation by applying the relevant credit rating methodologies, which may include consideration of both quantitative and qualitative factors. Since credit ratings are assigned and reviewed through a committee process, the analysis required beforehand includes a complete application of sector-specific rating criteria and methodologies. The analysts need to determine if information is robust enough to ensure they can form a view of the creditworthiness, assess key rating drivers according to applicable master or sector criteria, and develop or apply rating model where applicable.

Screening Committee

Where a debt issue or financial structure is deemed to have unique or complex features or does not appear to have a fundamental economic purpose, a screening committee may be held to determine whether the full rating process should proceed. A screening committee is not a rating committee but is rather a cross-sector committee that provides an initial layer of review to consider such rating proposals early in the rating process. The primary purpose of the screening committee is to determine the feasibility of assigning a credit rating to such proposals, which may need a crosssector review to assess how certain credit risks should be considered and which rating criteria may be applied.

Draft Report

Once information has been collected and the issuer and/or securities analyzed in accordance with applicable criteria and methodologies, the lead analyst and the analytical team or the primary and secondary analyst will form a rating recommendation and document their analysis and rationale in a committee package. The committee package must contain sufficient content, consistent with the methodology and criteria that apply to the analysis, to provide a solid basis for the recommended credit rating. The package must include a summary of key rating drivers, sensitivity analysis, criteria variations (if any), and details of reasonable investigation, amongst certain other minimum content.

Rating Committee

Committees consider the information and rating recommendation presented in the committee package, and discuss the recommendation. Committees frequently include analysts from outside the immediate asset class, sub-sector or geography since peer analysis is a central element of the process. The lead analyst will formulate his or her recommendation for consideration by a rating committee. The rating committee will also consider whether there is sufficient information to assign a credit rating. If the rating committee believes that the information available, both public and private, is insufficient to form a rating opinion, no credit rating will be assigned or maintained. Rating committees are a critical mechanism in promoting the quality, consistency and integrity of the rating process. A rating committee may adjust (or vary) the application of the criteria to reflect the risks of a specific transaction or entity. All such criteria variations are disclosed in the respective rating action commentaries, including their impact on the credit rating (if any) analysis is a central element of the process. In many jurisdictions, recognized rating agencies are only allowed to use a committee-based rating process. Therefore, credit ratings are determined only through rating committees, by a majority vote of the rating committee’s members, and not by individual analysts. Voting members are chosen based on relevant experience, with seniority and experience thresholds reflected in the committee quorum requirements. The committee considers relevant quantitative and qualitative factors, as defined in established criteria and methodologies, to arrive at the credit rating that most appropriately reflects both current and prospective performance. Consensus decision will be arrived on the appropriate rating, including, where appropriate, a rating outlook or rating watch designation.

Rating Notification

Once a rating committee reaches a decision and the appropriate external communications have been drafted regarding a credit rating action, the lead analyst typically contacts the issuer or its designated agent to inform them of the committee’s decision. The outcome is communicated in writing to the issuer or, where applicable, its arranger, sponsor or agent (exceptions apply). In communicating the credit rating, the rating action and the principal grounds on which the credit rating is based must be explained. Typically, analysts use a draft rating action commentary or a draft presale report, which includes the committee’s ratings decisions, to convey this information. The lead analyst provides the issuer with the opportunity to review the draft rating action commentary (or presale report) to allow the issuer to check for factual accuracy and the presence of non-public information. The Credit Rating Agency evaluates this feedback from issuers while retaining full editorial control over its commentaries. If there is no agreement, the rating process might result in an unpublished credit rating. An unpublished credit rating is a credit rating of an entity, issuer or issuer obligation that is unpublished, confidential and surveilled.

Rating Dissemination

The rating action is published after meeting the country’s issuer communication requirements. Credit ratings are communicated to the general public free of charge via credit rating announcements which are published on a website, and are distributed to major financial newswires.

Surveillance

With the exception of those credit ratings which are clearly identified as point-in-time ratings, once a credit rating has been published, the Credit Rating Agency will monitor that credit rating, as deemed appropriate, on an ongoing basis and will modify the credit rating as necessary in response to changes in the opinion of the creditworthiness of the issuer or issue. Rratings are typically monitored on an ongoing basis and the review process is a continuous one. Monitored credit ratings are also subject to a review by a rating committee, at least once annually. Certain sovereign and international public finance credit ratings are reviewed at least every six months, according to a calendar of scheduled review dates. Some states, such as the member states of the European Union, try to influence their ratings by prescribing a certain frequency of the review process. Analysts will convene a committee to review the credit rating instead of waiting for the next scheduled review if a business, financial, economic, operational or other development can reasonably be expected to result in a rating action. In some jurisdictions, however, the results may not be published easily in this case, but must follow a schedule.

Rating Evidence

The working methods of the analyst teams vary not only from rating agency to rating agency, but also within the Credit Rating Agency, especially in the case of the larger agencies. The scope and quality of the information sources used for a credit rating also vary. Furthermore, the stringency of the application of rating criteria can vary. The evidence base for ratings therefore also varies. RATING EVIDENCE scales the rating results on a scale from 0% (in the case of a completely arbitrary and random classification) to the theoretical case of 100% (the credit rating is beyond any doubt).

Innovation Rating

Methodologies, Processes, Read, Systems

The basic idea was already known to the Romans: the word “innovation” is developed from the Latin verb innovare (renew). As a noun, it means “newness” or “renewal”. The term is used in everyday language in the sense of “new ideas and inventions” and for their basic relationships.

An innovation rating traditionally includes the expectation following an investment budgeting decision that a new product or a new service will generate revenues. Relevant innovation ratings deal not only with products or services, but also assess process innovations and concept innovations (business and organizational innovations, business model innovations).

The number of employees, the geographic areas of activity of the company, the location of company headquarters, the sales and earnings in relation to research and development spending are indicators which matter.

Successful companies are run so that they generate ideas through their employee management. Not only their staff play a role in this analysis, but also consultants and freelance employees. However, the expenses for advice can be a deceptive indicator if other additional aspects are not used to measure performance.

Innovation and management culture in a company are closely related. The scope of customer feedback is just as relevant here as complaint management, whether from customers or employees. The question of which channels the management of a company uses to resonate with customers and employees, whether through targeted surveys, work groups, social media or big data analysis, can be instructive.

Rating analysts can use interviews with management to determine the industry and company-specific obstacles to innovation management. These obstacles range from legal barriers to technological difficulties. A number of criteria are used for the evaluation of internal as well as external obstacles.

The share of new products and services in earnings is broken down chronologically by cohort. In addition to data from external accounting, data from internal accounting can also be used to, for example, forecast innovation-related cost savings. To map innovation cycles, plans are analyzed in a target and actual comparison.

The Inventor’s Patent Dilemma

An increasing number of registered patents is an indicator of strong innovation activity. Filing a patent is not recommended for every invention, even if the patentability conditions are basically met. If the company cannot defend its patent after it has been granted or if the costs of the defense cannot be borne (should the patent be attacked by a third party), waiving the patent may make sense. It can be expensive if an unauthorized use of an invention shall be prohibited.

The innovation rating examines the extent to which inventions by the company can be circumvented: if the inventions can be exchanged using similar procedures that are not protected or cannot be protected, patent protection simulates but vulnerable strength, since imitation in a similar way by third parties must be expected, especially in profitable markets.

Companies often refrain from any disclosure, as is enforced when filing a patent, if the disclosure only enables a third party to reproduce and copy the invention: Confidentiality can mean better protection. For large companies, however, keeping knowledge secret in light of natural employee turnover can be a particular challenge. Therefore (as for other reasons) the company size also plays a role in the innovation rating.

Too high complexity of inventions can also speak against patent applications. If inventions consist of a multitude of elements that would have to be individually protected, patent protection would generate disproportionate costs. Protecting only certain, particularly important parts of a product with a patent can be a sensible strategy here, but it requires corresponding specialist knowledge in the management of patent applications and exploitation. The innovation rating therefore examines what conditions the company has created to meet these challenges. and which combinations with alternative protection mechanisms it can also use.

Successful Innovation Requires Taking Smart Risks

Innovation ratings require the management of the company to be profiled. The profiling helps to understand to what extent the management is willing to take risks in order to increase the innovative strength of their company. The extent to which employees and management are able to bring about and implement innovations in terms of corporate culture is of central importance.

Organizational-theoretical considerations as well as empirical surveys can help to reflect the suitability of virtual teams, the project or matrix organization as well as functional organization. Innovation rating is therefore also based on the company’s human resources. The human resources department provides figures on employees working in research and development, on the level of education and the use of further training measures, the professional experience of employees and employee satisfaction. The company’s internal methods of personnel and management rating are to be examined with regard to the extent to which priority is given to innovation goals in the assessment and incentive systems.

The innovation rating is not just the result of a point evaluation process or a simple computer model, but has to be understood as a committee-based process which is aimed at the integration of all aspects that are decisive for the ordinal classification of a company’s innovation success. The term “innovation rating” therefore designates both the assessment process and the result of the rating process in the form of a “grade”. The innovation rating provides both relative – namely in comparison to other companies – and absolute information, for example if a low rating indicates the complete lack of ressources for innovation.

Recovery Rating

Criteria, Methodologies, Notching, Processes, Read, Repairs, Systems

Credit risk is a function of an issuer’s probability of default and the loss given default on a specific debt instrument. For noninvestment grade corporate issuers, some rating agencies assign separate ratings for these two components of credit risk. An issuer rating is a rating agency’s assessment of the probability that an issuer will default on its debt. A recovery rating, on the other hand, considers the value of assets (or enterprise value) that would be available to an investor for a specific debt instrument, in accordance with its ranking and legal rights, at the time of an assumed emergence from a reorganization or liquidation process that might occur between, for example, six and 18 months after default.

Recovery ratings can be assigned to specific instruments for corporate non-investment-grade issuers, i.e., those issuers with a speculative grade issuer rating. They are assigned because non-investment-grade bonds have a greater likelihood of default, investors have a greater interest in the outcome of a potential default scenario and an assumed default scenario can be more reliably constructed.

Criteria do not typically apply ratings on public finance transactions or financial institutions, and also not to preferred share securities that are by definition low recovery instruments. Since commercial paper or short-term instruments have by definition shorter maturity durations and a higher reliance on liquidity considerations, commercial paper is also not eligible for recovery ratings.

While the underlying security affected by a recovery rating will have a rating trend unless its status is under review, recovery ratings themselves have no trends and are not placed under review. In most cases, a recovery rating will not be maintained for very long on a security that has downgraded to Default or Selective Default.

There are five stages in the determination of a recovery rating and final instrument rating: Determination of a path to default scenario, valuation of the issuer upon emergence from default, determination of claims against the defaulted entity, distribution of value from the defaulted entity and assignment of a recovery rating and notching of the issuer rating to determine a final instrument rating.

A recovery rating necessarily assumes that a default will occur; the actual probability of default is addressed solely by the issuer rating. It is important to consider the distinction between companies that have issuer ratings in the B-category or lower and companies with issuer ratings in the BB range, since lower default risk makes it more difficult to construct a scenario for both a path to default and asset or enterprise values at default.

For BB-range issuers, a rating agency might be more restrictive in terms of the degree of notching uplift it will permit between the issuer rating and the recovery rating, so as to limit the possibility of non-investment-grade issuers having instruments rated well into investment-grade territory. The final instrument rating, determined by notching up or down from the issuer rating in accordance with the recovery rating essentially blends the two elements of credit risk — probability of default and loss given default — giving investors an additional measure of the expected performance of a non-investment-grade bond.

Determining Recovery Ratings

Criteria, Methodologies, Notching, Processes, Systems

Credit risk is a function of an issuer’s probability of default and the loss given default on a specific debt instrument. For noninvestment grade corporate issuers, some rating agencies assign separate ratings for these two components of credit risk. An issuer rating is a rating agency’s assessment of the probability that an issuer will default on its debt. A recovery rating, on the other hand, considers the value of assets (or enterprise value) that would be available to an investor for a specific debt instrument, in accordance with its ranking and legal rights, at the time of an assumed emergence from a reorganization or liquidation process that might occur between, for example, six and 18 months after default.

Recovery ratings can be assigned to specific instruments for corporate non-investment-grade issuers, i.e., those issuers with a speculative grade issuer rating. They are assigned because non-investment-grade bonds have a greater likelihood of default, investors have a greater interest in the outcome of a potential default scenario and an assumed default scenario can be more reliably constructed.

Criteria do not typically apply ratings on public finance transactions or financial institutions, and also not to preferred share securities that are by definition low recovery instruments. Since commercial paper or short-term instruments have by definition shorter maturity durations and a higher reliance on liquidity considerations, commercial paper is also not eligible for recovery ratings.

While the underlying security affected by a recovery rating will have a rating trend unless its status is under review, recovery ratings themselves have no trends and are not placed under review. In most cases, a recovery rating will not be maintained for very long on a security that has downgraded to Default or Selective Default.

There are five stages in the determination of a recovery rating and final instrument rating: Determination of a path to default scenario, valuation of the issuer upon emergence from default, determination of claims against the defaulted entity, distribution of value from the defaulted entity and assignment of a recovery rating and notching of the issuer rating to determine a final instrument rating.

A recovery rating necessarily assumes that a default will occur; the actual probability of default is addressed solely by the issuer rating. It is important to consider the distinction between companies that have issuer ratings in the B-category or lower and companies with issuer ratings in the BB range, since lower default risk makes it more difficult to construct a scenario for both a path to default and asset or enterprise values at default.

For BB-range issuers, a rating agency might be more restrictive in terms of the degree of notching uplift it will permit between the issuer rating and the recovery rating, so as to limit the possibility of non-investment-grade issuers having instruments rated well into investment-grade territory. The final instrument rating, determined by notching up or down from the issuer rating in accordance with the recovery rating essentially blends the two elements of credit risk — probability of default and loss given default — giving investors an additional measure of the expected performance of a non-investment-grade bond.