New dawn for credit insurance

After all that turmoil, the market is looking calmer, losses are down, and the market is beginning to return to normal. But the trade credit insurance market is now transformed, according to Tim Smith, Leader of Marsh’s Trade Credit Practice in Europe, the Middle East and Africa.

“The last two years have been extremely challenging both for trade credit insurance buyers and insurers,” he explained during a briefing on European trade credit insurance issues yesterday in London. “But the market is back and insurers are open for business, and they are supporting day-to-day transactions across Europe and beyond.”

He added, however, that although insurers are more comfortable with their exposures, the marketplace is still fragile.

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Despite concerns around Greece and the reduction in government stimulus packages, trading still appears to be continuing at the moment, said Mr Smith, “and certainly trade credit insurers are re-opening some of the doors that had previously been closed.”

He pointed out that where 2008/9 saw a significant increase in actual claims numbers, in 2010 there has been a similar reduction, down to previous loss levels seen in 2007.

RE-ENGAGING RESTART

“We have seen insurers in Germany, France and the UK start to re-engage with their clients,” he said. “The outlook for 2010 and 2011 is fairly positive with credit insurers back open for business, with an appetite to grow across Europe and beyond. The last 18 months has seen the market transformed. Where insurers had previously had some very comfortable procedures and processes around offering cover, they have really had to upgrade their infrastructure.”

Basically, insurers have developed more sophisticated techniques for assessment and there is a much greater level of transparency required. Mr Smith said that companies are now more likely to share previously unseen financial information such as management accounts, forecasts and the like, in order to maintain or enhance the credit scoring they have.

“In the past, insurers would look at latest filed information—and much of the information was ineffectual and out-of-date,” said Mr Smith. “Now, insurers are insisting on the latest management information, are meeting with clients, and making more regular assessments of up-to-date information. Many companies are recognising that transparency is a positive and the best way forward.”

The market has returned perhaps quicker than many expected. Mr Smith said there was a huge fear in 2009 that the 2010 reinsurance treaties would be pretty tough to secure on the back of significant losses. In reality, he explained, all the reinsurance treaties went through at full capacity and some had capacity to spare. It was at an increased cost, but there was enough reinsurance capacity to support the primary credit insurers, despite the partial withdrawal of Swiss Re from the market.

Interestingly, there is some new capacity in the market—two new players have entered the trade credit insurance sector in the last year: Trade Credit Re Insurance Company (TCRe), partially owned by the Belgian government, and Markel, both offering more of a catastrophe-type product.

Mr Smith said that pricing varies across Europe. There are premium rate reductions, driven by competition, in Germany, France, Italy and the UK, and premium rate stability, or very small increases, in Belgium, Denmark, the Netherlands. But there are also still some areas seeing premium rate increases, such as Spain, Portugal and Greece.

The market is dominated by three mono-line insurers, but there are three or four insurers that offer catastrophe-type insurance and according to Mr Smith, “they have really bitten into the market share.” Indeed, there has been a move from whole turnover policies towards catastrophe covers, and this is partly because of the lack of control that companies felt during the crisis when limits were cancelled, reduced or withdrawn.

CANCELLATION QUESTION

This is the one issue that still troubles buyers. “The issue of non-cancellable cover is the obvious question following the difficulties in the market—it is the first question on everybody’s lips,” said Mr Smith. “It is available with the catastrophic-type covers—one insurer currently offers it, a couple of others will offer it selectively, and we are trying to push some of our other insurers to adopt it, and we are making some headway.” He added, “Where we have had more success is around the issue of notice periods so that rather than having a guaranteed 12 month cover, there can be a 90 day cancellation clause or a 180 day notice period. The non-cancellable part is proving a hurdle for some of the insurers but we are working on this at the moment.”

Looking ahead to 2011, Mr Smith said he sees potentially a competitive marketplace, and a reduction in losses. Reinsurance treaty negotiations begin next month, in October, and Mr Smith is anticipating that capacity will be there, with prices likely to stabilise.