Multinationals boost demand for credit risk insurance in Spain

According to broker Marsh, concerns about the state of Spain’s embattled banking system have only added to the risk of non-payment by companies. This has put ever more pressure on a credit insurance market that has already hardened considerably in Spain in recent years.

Higher premiums and tougher conditions have been a feature of the Spanish credit insurance market since 2008, when the country’s economy first started to stumble. “Rates have gone up by more than 200% since the start of the crisis,” said Francisco Márquez de Prado, the Trade Credit Manager at Marsh in Spain.

Spanish companies are traditionally avid buyers of credit insurance. The country has one of the highest penetration levels of the cover in Europe.

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But Mr Márquez said that the uncertainty of the past few weeks has also resulted in a high number of multinational groups urging their Spanish units to buy coverage, something that was not the case in previous years. “We have seen a spectacular increase in the demand by Spanish subsidiaries of multinational firms recently,” he remarked.

But even now, he noted, there is still plenty of capacity in the market with half a dozen insurers continuing to offer credit insurance.

Companies in all sectors can still purchase cover, he said, as long as they agree to higher prices and tighter terms and conditions. “Insurers are much more cautious today than before the crisis,” Mr Márquez pointed out.

He said that some sectors, such as the food industry, find it easier to secure cover than others. Construction companies in particular face challenges when they go to the market to transfer their credit risks.

Spain is one of the countries in which credit risk has become more acute in recent months, but by no means is it the only one. The problem is faced by companies all around the European Union, and particularly in Mediterranean countries that have been targeted by the financial markets in recent weeks.

In a seminar in Madrid earlier this week, Miguel Aguirre, Head of Country Risks at Coface Ibérica, a credit insurer, said that late payments have gone up by 47% in southern Europe so far this year.

According to Credito y Caución, another credit insurance company, late payments for B2B transactions have become widespread in western Europe, with companies surveyed by the firm reporting that 31% of domestic payments for goods and services, and 27% of foreign ones, have been made late.

The trend is a worrying one as European companies make very frequent use of credit lines to assist clients to purchase their products. Around half the value of total sales are made with this kind of funding, noted a report published by Credito y Caución.

The main reason behind the late payments is a lack of liquidity. Suspicions about the health of the financial sector in countries like Spain only complicate matters.

Domestic clients are the main concern for companies in Italy and Ireland, where, respectively, 39.5% and 38.5% of payments are late. In Greece the ratio reaches 41.1%.

But German and Dutch companies face a different problem, as late payments by foreign clients amount to 37.4% and 34.7% of the total sales they make abroad.

The situation is unlikely to take a turn for the better anytime soon, as yet another credit insurer, Euler Hermes, has forecast an increase in corporate bankruptcies in 2012.

The trend will be observed worldwide, but once again it is especially worrying in the eurozone, said the insurer. The total number of companies predicted to go bust will rise by 7% this year in the eurozone, compared to a global average of 4%, according to Euler Hermes estimates.

Greece and Portugal are likely to pull the cart with a 25% growth of bankruptcies followed by Spain (20%), and then Italy and the Netherlands with 17% each.

Dutch companies are set to suffer because their country has a very open economy that relies much on the performance of a now sluggish global environment, Euler Hermes pointed out. Germany and the UK, however, should see fewer bankruptcies than in 2011.