RiskPool

The very first true and fully automated insurance for FX, interest rate and commodity price risks


Network Effects

EBITDA boost

Significant scale-based savings resulting from our cross-customer hedging and netting approach as well as partially from the insurance asset management contribution can increase your EBITDA by up to 12% p.a. (i.e. our risk pooling process resulting in strong network effects) which again is equal to an increase of 16% in sales. Add to this selected commodity upsides, e.g. various sorts of steel or rare earths which thanks to RiskPool become hedgeable for the very first time, and you might see up to an 80% annual net profit increase in total. Hence with RiskPool your EBITDA and net profit will go up sharply.

Compliant

Simple and clean insurance solution

RiskPool reduces compliance burdens tremendously; just think of MiFID II, EMIR, KYC checks, and the likes, which for an insurance policy are no longer applicable from a customer’s perspective. At the same time you are getting rid of all potential legal litigations over contract details (e.g. derivatives pricing) related to hedging transactions.

ERP integrated

Works with all leading systems

Our close collaboration with major ERP system providers ensures a seamless integration and stable processes. For now RiskPool and our other products work with the following systems:

Cross-Product Integration

Seamless integration with complementary products

RiskPool is seamlessly integrated with all other products including those provided by third parties since this way we can achieve the maximum utility for you. Thus cross-border transactions and financings or other international finance solutions won't be a complex issue anymore.

Automation

No treasury department needed anymore

Enjoy an increased focus on your core business with automation taking all the financial risk management hassles (e.g. now being able to go global without worrying about FX rates) and potential human errors out while the use of artificial intelligence and the business model inherent insurance asset management contributions are improving results further.

Wholistic approach

Counterparty risk and overlay effect optimized

Our approach is wholist since the algorithms account for FICC and other non-FICC-related overlay effects reducing costs further and effectively mitigate counterparty risk since all risks are pooled (broader base in counterparties compared to single-party derivative transactions) and hence as outlined before only the post-netting residual risk needs to be hedged with derivatives which has another advantage namely a significant reduction in financial institution counterparty risks which is an important aspect considering recent market conditions.




Beyond these clear advantages there is also our sophiticated and strictly customer-focused robo-advisor as well as a dedicated and highly experienced support team ready to help you 24/7 with any questions or issues.




Customer Success Stories and Case Studies

A selection of notable and recently onboarded clients as well as explainatory case studies

RiskPool Data and Forecasts

5221
customers YE 2017
324
Total EBITDA increase in bn EUR (all customers)
42
percent in average savings even post insurance tax
68
active sales partners

Michael Perlgren, Senior Actuary and Pricing Director for RiskPool
michael.perlgren@mountwish.com

A basic overview on RiskPool

Once RiskPool is setup and you or our robo advisor (who is strictly working in your favor) have determined according bandwidths of risk acceptance (Hence customers can define risk bandwidths which they are willing to bear or leave it to our algorithm but also decide not to accept any kind of bandwidth at all. These bandwidths in combination with other risk and market metrics are then reflected in our pricing.) as well as optimal rates the plugin will track all postings in your ERP system in real-time and immediately transfer these exposures from your balance sheet to our insurance pool.
From thereon the system will, of course, monitor the need for corrective actions with regards to your settings and either assist you in doing so or complete these amendments automatically within defined limits.

In the next steps total utility is maximized across all customers and hence the maximum netting effect achieved.
The benefits thereof are then given back to you in the form of improved pricing and chargebacks.

This said the algorithm always optimizes overall utility and then redistributes according benefits fairly. Hence all customers will always be better off compared to (traditional) stand-alone approaches based on derivatives.

The important point to know when talking about RiskPool is that it is a straight-forward insurance solution with a goodwill agreement saying that surpluses are redistributed to you as a customer post the deduction of our contractually defined margin.
What's more additional aspects like insurance asset management are working to your advantage (investing premiums interims-wise in the capital markets and charging initially a tiny bit more for legal and practical reasons which will be returned to you in the process of contractual year-end calculations which is pretty usual for a mutual insurance).

Thus from your side no derivatives are involved and all risks are born by us.

Macroeconomic Deep Dive             Process Steps and Technical Details

Disrupting Financial Risk Management

RiskPool Explained

Economic rationale

Deep dive on the theory underlying our solution

Per economic zero-sum-game-theory, all available forex, rates, and commodity market instruments worldwide added up will return zero profits since the earnings of one stakeholder are the losses of another one. This is because FICC markets are speculative ones, while the stock market, for example, is a non-speculative market. Every single profit is taken from other market participants whether banks, corporations or day traders. However, this does not mean that in every individual transaction there is a winner and a loser since there can be mutual advantages due to different currency positions held for varying amounts of time. So, positions will always offset each other in the markets. For corporates/businesses speculation is usually nothing they like to participate in (exempt from a few financial services firms) and hence reliable rates and spots are clearly preferred over uncertain gains. That is exactly what we are doing by giving customers fixed or capped rates with defined bandwidths of risks and for agreed on periods, matching these preferences with those of other corporations directly (if you like to put it this way we are taking the peaks out). Thus, many positions will eliminate each other and in consequence, reduce the residual risk which needs to be transferred to “speculators” and other financial intermediaries in the derivatives market and/or securitized product market (yes we are currently planning to securitize and sell parts of the residual risk). However, since based on our statistical analysis at least (the number is quickly growing with global size) more than 60% of positions can be cleared among customers directly only for the decreasing number of remaining risk positions hedging contracts need to be bought, which is a clear cost advantage given to the customer in addition to not having to run own treasury systems and risk management departments. Beyond this, all risk positions are anonymized using an alphanumeric identity protection logic and thus total privacy is absolutely ensured and nothing the customer needs to worry about. More so all positions are only transferred to our mutual insurance pool and matched there and hence no direct customer to customer transfers will ever be used. At the same time, the pricing is as mentioned before set dynamically based on our real costs and billed at the end of the previous month in advance for the next month (forecasted real costs) while the final adjustment will first happen at the end of the year (see pricing details below). The premiums are invested – to insurance standards – in the capital markets, driving the need for hedging instruments further downwards as the insurance asset management returns are taken into account in our calculations of residual risks to be covered by derivatives and in consequence also in the premium calculations. With this kind of quasi-internal FICC risk pricing and some active decisions made on market data, we again become a market maker in FICC by taking lots of volume out of the original derivatives markets and thus impacting the general market pricing of FICC instruments in favor of our customers and other stakeholders.




Market Size (as of 2016)

The market size for such an insurance solution is 2,637bn USD with Asia being the largest market (1,058bn USD), North America (910bn USD) second largest and Europe (712bn USD) third. At the same time, it is crucial to quickly expand internationally and win customers on all continents at the same time to get contrary risks position on the platform (network effects apply). Additionally, a value of at least 385bn USD in estimated revenues could be added coming from financial institution risk management itself. All values are double checked by first using a bottom-up calculation approach derived from the KPMG study and secondly by using macro FICC reports from the Bank for International Settlement.
The according Bank for International Settlement (BIS) data is as follows: Gross market value in bn USD for FX is 883, for Rates is 1,477, and for Commodities is 283, giving us a total of 2,637bn USD. (Nominal amounts outstanding according to BIS respectively are 15,965bn USD, 19,722bn USD, 1,949bn USD resulting in a total nominal market value of 37,636bn USD)
Thus the market size of 2.64tn USD is clearly confirmed and likely even exceeded especially if considering current market growth rates in excess of 10% annually; thus reaching 3.7tn USD by 2020 as the other numbers reflect 2015 data.


Sebastian Hess, Chief Economist
sebastian.hess@mountwish.com







Technical Aspects

Deep dive on the technology and process underlying our solution



Harnessing the capabilities of Google's infrastructure while making data privacy and protection a top priority
Process steps

1. Real-time tracking of exposures via ERP system plugins

2. Immediate transfer of identified exposures from the customers' balance sheet to our own one (insurance pool)

3. Maximising total utility: Automatic rate, duration and volume setting (price optimization considering real costs – incl. point 4 prev. months results – and customer benefits) and global netting process (“cross-customer” -> economic zero-sum game in FICC markets)

4. Hedging of residual risks (incl. overhedging) and market making as appropriate

5. Calculation of premiums depending on applicable risk classes, insurance asset management contribution, exposure transferred and mentioned real costs

6. Annual calculation and redistribution of excess premiums paid (difference to 2.25% monthly invoice*)



Using Julia as Programming Language

  • Avoids the two language problem which usually exists for most financial firms and hence it is easy to react quickly to new requirements and situations, i.e. very short times to market
  • Additionally our whole system becomes more stable to run and less error-prone since no re-writing is required with Julia
  • Effortless integration of additional data sources and fast customer onboarding
  • Julia is one of the most advanced languages for numerical analyses and parallel computing while also being effective for general-purpose programming, web use or as a specification language


  • Data management

    In addition to the above we use a Blockchain technology-based data verification and transaction plausibility checking process on macro-level (hence if you like to put it this way it's a distributed ledger for locally/regionally aggregated information) while relying on (de-)centralized databases on micro-level as this combination allows us to harness the advantages of both information architectures with a high degree of efficiency and ensure the highest level of compliance and security.
    Learn more about our data management approach

    Cross-Product Integration

    Robo Advisory

    In regards to insuring your financial risks you can choose between manual plugin setup (defining individual risk preferences and specific rates), complete automation or a mix of both with assistance through our robo advisor who will also help you to determine where the standard or premium insurance version makes more sense. With regards to the latter a combination of both is possible and usually the best method for most customers; just ask our sales team.

    Learn more

    Standard

    The perfect match for most pairs
    • A pure mutual insurance
    • Limited market upsides granted
    • Flexible in terms of defining risk bandwidths
    • Full automation possible
    • Upgrade to premium version for specific pairs possible
    1.94%
    of annual revenues
    on average*
    *Customers of this type - hence the average ones - usually have to spend around 2.86% of their revenues on financial risk management without our solution as per a recent KPMG study
    • A true mutual insurance where market upsides are given to you in full
    • Flexible in terms of defining risk bandwidths
    • Full automation possible
    • Can be combined with standard solution as appropriate for specific pairs
    2.51%
    of annual revenues
    on average*
    *Customers of this type - hence the average ones - usually have to spend around 2.86% of their revenues on financial risk management without our solution as per a recent KPMG study

    Pricing Details

    The pricing for our insurance solution is set dynamically as a percentage of your revenues (key risk driver correlated to the exposure -> the correct percentage is defined in an individual assessment) and based on our own hedging costs which will go down with increasing international scale as the number of contrary risk positions matching each other in the insurance pool improves along with it. Additionally, we consider aspects like insurance asset management contribution, cash receipts-to-disbursement-ratio or our adjusted loss ratio when calculating our premiums while benchmarking these final premiums against traditional hedging costs. The average current charge in the standard model is 1.94% of revenues for the average customer who otherwise would have to spend average risk management costs of 2.86% per year. Please see these numbers just as a reference point and contact us for a detailed offer based on your business and needs.

    Invoicing process examplarily explained for the standard version

    Please note that in the first step we will (on average) invoice 2.25% of your revenues to be sure to cover all our cost as agreed in the contract. In this context, it is important to remember that firms spend usually on average 2.86% of their revenues on financial risk management as per a recent KPMG study and hence we are already quite a bit cheaper.
    At the end of the contractual year we then assess the netting quota during the entire trailing twelve months (TTM) and based thereon our own actual hedging costs for the residual risks to calculate the relevant premiums also considering aspects like insurance asset management in your favor.
    On average the costs to hedge the residual risk are around 1.94% (already including our own gross margin of 15-20%) and hence we will wire back 0.56% to you based on the goodwill agreement included in our contract and therefore your effective costs are 1.94% (effective premiums) and not 2.25% as per the regular invoices.

    We do so for primarily three reasons:
    1. Avoidance of special notice rights each time a premium changes with negative effects (market movements vs stable pricing) by charging 2.25% upfront and declaring grant backs as goodwill based on actual costs which is absolutely usual for a mutual insurance. This said the actual premium per year will fluctuate around 1.94% by ca. 12 basis points as each year is slightly different with regards to our own costs to hedge the residual risk and thus effective costs post the matching process (netting of exposures). However, considering our growth track and current development the costs and hence prices can be expected to decline further over time and thus you might pay even less than the 1.94%. What’s more, by doing so we are now not only on the save side in terms of cost coverage but can also able to lower administrative burdens quite a bit as no special notice rights apply (thus no monthly contract terminations, adaptions or renewals) resulting in an improved cost structure. So again we only charge you as a customer the targeted 1.94% effectively!
    2. Increases insurance asset management contribution and thus improves both our margin and the costs for you as a customer (lower pricing in year-end calculation due to higher asset management contribution).
    3. Regulatory requirements since with this model it is far easier to pass any stress test.

    What others are saying about us







    Please note that the above quotes do not necessarily mean any kind of affiliation or endorsement but reflect only what has been said or written to us.

    Kathrina Jennings
    Vice President and First Level Contact, RiskPool

    Kathrina is happy to help you with any questions or issues concerning RiskPool

    Call us
    Global Service Center
    Please schedule a call via this link first
    so that we can ensure a top-notch experience


    United States +1-319-527-2807,428249#
    United Kingdom: +44-330-998-1257,428249#
    Singapore / APAC: +65-3138-9201,428249#
    Chile / Latin America: +56-2-3210-9931,428249#
    Middle East: +972-55-966-1091,428249#
    Germany: +49-209-8829-4432,428249#













    Follow this link to learn more about Magma the RiskPool for Cryptocurrencies