Globally, financial institutions hold tens of billions of dollars in protection for debt obligations through nonpayment insurance policies. As discussed below, much of this coverage is structured as a pro-insured product, especially where it is used for capital risk weight mitigation under the relevant implementation of the Basel Accords, such as the Capital Requirements Regulation in the European Union or 12 C.F.R. Part 217 in the United States.
NPI policies performed well following the 2008 financial crisis and still enjoy a reputation for a high rate of claims payment, with industry estimates indicating that 97% of all claims are paid. Still, the COVID-19 crisis represents a global challenge of an entirely different magnitude. Therefore, in order to successfully preserve and exercise their rights under such policies, financial institutions should review their operational plans for utilizing NPI policies.
This client briefing outlines some of the key considerations for NPI policies governed by New York law. For a companion piece on key considerations for NPI policies governed by English law, please refer to the briefing prepared by our colleagues in London.