In a December roundtable event in New York, GTR gathered senior leaders in trade credit and political risk insurance to discuss the myriad disruptive factors that are reshaping the future of their business in the US. Chubb, which in 2021 celebrated its 20th anniversary in political risk and credit, hosted and chaired the discussion.


Roundtable participants

  • Olivier David, global head of special products – trade credit and political risks, Atradius
  • Alexandre Egnell, senior vice-president: FRS, Liberty Specialty Markets
  • Scott Ettien, global head of trade credit, Willis Towers Watson
  • Joseph Glover, underwriter, political risk and credit, Chubb (chair)
  • Jay LeClaire, region director, Euler Hermes World Agency
  • Christophe Letondot, managing director, Marsh
  • Kade Spears, speaking at the time as head of specialty, SCOR | Channel


Glover: In what ways has the pandemic affected the use of, and demand for, trade credit and political risk insurance? Looking back, how do you think the US market responded?

Letondot: Capacity has fallen, but it’s worth noting that insurers have pulled out not necessarily because of credit risk, per se, but rather because they want to redeploy capital.

Insurers are moving capital away from smaller lines of business to those that attract fast returns. It’s unfortunate when insurers look to tackle short returns rather than look through cycles, because trade credit is a good countercyclical product.

Ettien: If I were trying to put a number on it, it’s a little bit over US$25bn in capital that was pulled out of the market. We’re coming through to the tail end of Covid, and while the losses didn’t really materialise to the levels we first thought, it is difficult for us to replace some of that capacity in the market. If you’re heavy in one sector, some insurers will have large lines allocated to some of the more prevalent names in that sector, so that’s not an easy replacement and you have to scramble a bit.

What is more worrisome is the fortitude and staying power of current multiline insurers and the new entrants that are getting into the market. Insurers such as Euler Hermes, Atradius and Coface are monolines and they’re all dedicated to this line of insurance, and fully grasp the capital return model. When Covid hit, many of the multiline carriers began to worry as the spotlight’s on credit and they have a lot of capital deployed in these lines; what is the return on that capital? There is some Monday morning quarterbacking and second guessing of some of these earlier decisions, which is really not healthy for any of us in this room. Companies that aren’t dedicated to trade credit but dabble in trade credit worry me. For them, trade credit is a nice specialty line and has been profitable, but may get eliminated based on capital return allocation models during more difficult times.


Glover: Are clients questioning this, in terms of asking who is committed to the product line?

Ettien: Everybody knows the story with Zurich and QBE. Zurich made a global withdrawal out of the product, so that’s a little bit easier to swallow. QBE made a regional decision to get out of the product, which makes it a lot more difficult. Then you start to worry: where else are they in the world, what are their next steps, and how as an insured and a broker can I predict their next move, because now they’ve become unpredictable?

Letondot: One of the things that we’re going to look to do, especially with some of the bigger programmes for some of the large multinationals, or just where we need a lot of capacity, is syndicate where before we might have gone with one market. That way, if another player pulls out at least there’s a ready and available market there that knows the programme and knows the client. Clients want long-term relationships, just like the underwriters do, so that’s something that we’re quite cautious of when we put markets on to big programmes.

Egnell: It’s really the difference between a very short-term and a long-term strategy. None of the decisions that were taken were driven by large claims.

The positive is that this is all going to be offset by all these new players coming in. And some of the existing players who were standing on the sidelines during Covid are now coming back in a big way. However, I see the same trend as we see with banks: there’s a flight to safer risk, to ‘Covid-proof’ sectors, to investment grade. Is there going to be enough capacity for tougher sectors? That remains to be seen.

LeClaire: This underscores the importance of the broker in managing that relationship and those challenges. We seem to enter into these economic downturns every 10 years or so, and consistency and stability are critical, because when the multinationals and SMEs and every business owner looks to a solution that is discretionary, they require and deserve certain benefits.

Setting realistic expectations, the goal is to grow business as well as to give companies the confidence to trade globally.

The world came to an end in March 2020. Our claims activities were nominal, then they spiked. In May of 2020, we were 300% above normal trends. When September came around, things started to level off. That’s how that year went.

2021 was the year of government schemes and stimulus. The US put US$3.5tn into the economy. And here we are today, seeing inflation, rising energy prices, supply chain issues, and so on.

When we talk about competition, it’s not a good thing that two big carriers left. Competition is necessary and critical because we all benefit by it. When Christophe was speaking to the interest in potentially syndicating to protect against these capacity issues, well, when two players are now out of the market, that puts more stresses on the other carriers. There are sectors that command and support large amounts of exposure, and there are others where it’s a more challenging situation. So being able to spread that capacity out through a large number of insurers is a very good thing.

What else does competition do? It enables creativity, competitiveness, better solutions, better resources and better capabilities. It’ll be interesting to see, during this pandemic, those that have been sitting on the sidelines, how quickly they come back and to what magnitude.

Spears: There will always be capital coming into and out of our industry. That’s never going to stop. Executives are always going to be looking to optimise their position.

What’s troubling though is we have two players who, from multiple sources, were profitable, and were profitable in the midst of a severe economic downturn, yet they were shut down. It is almost impossible to benchmark performance against peers, for a host of reasons. Data is very hard to come by. And even on capital allocation, Standard & Poor’s capital allocation model for what we do is based on a data set from 1994 until 2002-03. I wasn’t working in the industry at that point in time, but was a different market and a different type of business; that capital framework is not appropriate for what we do today.

This is where as an industry we have to do a better job of sharing information, talking about what we do and how we facilitate global trade and the building of infrastructure, and how we can work together. It’s not purely altruistic; we can make very good returns.

David: Over the past 25 to 30 years that I have been in the market, I’ve seen companies and syndicates coming and going. It’s nothing new. It’s related to changes of executives and management, where there’s often very little knowledge of this niche market. Some executives have a limited vision on what can be done, so they decide to close down, and then the next ones to come in decide to open back up because they see growth and profit. Some companies have had more stability within top management than others.

Letondot: There’s also a qualitative side. My understanding is a lot of the capital model-driven decisions are from senior executives who often come from more of a consulting background, where the relationship side isn’t given a weight. The qualitative and relationship side is lost in the clinical numbers that come out of a consulting approach.

David: The difference is that in our field, it’s fairly volatile and there can be big wins or big losses at any point in time, but overall across the cycle it’s a very good business. Some companies just can’t stand the volatility.

To some extent, it’s the responsibility of the broker to find out and understand when the writing is on the wall, and advise their client to go with one company or another depending on the environment.

Egnell: Overall, most of the players in the industry are still pretty stable, and I think that’s a message we must stress.

LeClaire: We have to grow market share. And whether there are 40 insurers or four, there’s still a market development and penetration issue that is impacting everyone in this room. One of the things that gets us out of bed every morning is this discussion of the concept of what we do, and how it’s met with resistance every single day.

Look at the Americas versus other regions. In Europe, most companies use credit insurance, and it’s a very common tool to enable safe trade between suppliers, buyers, sellers, banks, etc. In this country the willingness to engage on this topic is not as easy. Once a potential client learns and understands how these solutions can be used to help them grow, to give them good information, credit intelligence, protect their balance sheet and income statement, and enhance their borrowing facilities, then we start having a different conversation, and then the premium is justified as opposed to dismissed. That’s what has to continue aggressively if we’re going to grow.


Glover: Have you noticed a difference in approach in 2021 versus 2020, where maybe people were taking a pause and seeing how things went? Has some of that appetite returned?

Ettien: We have to compare this to the global financial crisis (GFC). The GFC hit and the whole world caught on fire at the same time. That’s the first time that ever happened, because downturns were usually limited to countries or sectors. The crunch was on liquidity and you had healthy companies going bankrupt because their access to liquidity wasn’t good.

Now, 12 years later, you now have another world event happening all at the same time. But there’s no playbook. In the GFC, the playbook was: underwrite for liquidity. But in 2020, there was no playbook for underwriting a pandemic. Then the question became, how long is the pandemic going to last? Nobody knew. So the entire world was learning how to underwrite credit on the fly under Covid restrictions.

Then, the US government came in with US$3.5tn support. Adding that liquidity to the economy was a great thing, although there have been some unintended consequences. The difference it brought was that we didn’t have the claims, and everybody had a chance to adjust their portfolios. Noncancellable markets could adjust as renewals came up, while the cancellable markets were adjusting as they go.

Also, demand dropped off, so limits weren’t being exposed nearly at the levels that they were before Covid hit. That also gave everybody a breather to say, ‘okay, if I have to adjust these limits, I don’t have the demand to match it, so that’s going to be fine’. Everybody was trying to learn from everybody else. That was my big takeaway in 2020.

In 2021 we were able to move forward and we now have a playbook on how to underwrite a pandemic.

Letondot: We have seen big differences, both from the client and the markets around cancellable and noncancellable limits, and the XoL carriers are obviously protected through structure, unlike the three monolines.

As a broker, we saw a lot of understandable but unfortunate knee-jerk reactions in big sectors, maybe a bit more quickly than we would have hoped, especially for some of the clients that really needed the limits. The question for them is now, ‘why should we buy this product again, when the moment that we needed it, it wasn’t there’? There’s a need for education from the brokers to explain to the clients why.


Glover: Talking about the playbook for underwriting in a pandemic, how would you assess your strategy in 2020 and how did it work?

Egnell: On our XoL multibuyer book overall the response from the whole market was pretty good, albeit with some caveats during the heat of the crisis. We provided shorter periods for limits, downgrade trigger limits, lower indemnities, and deductible per buyer – so we were still able to provide coverage.

One of the surprises was that, while we were expecting to see new clients seeking credit insurance during the worst of the crisis, the growth of our XoL book in 2020 and 2021 was essentially driven by long-time users of credit insurance.

One of the other consequences that we’ve seen is that the whole supply chain bottleneck has completely disrupted the cashflow cycles and balance sheets of both suppliers and buyers, so we had to live with that and sometimes accept longer terms of payment. I think we responded well to that.

At Liberty, we do a lot of work with public agencies, which as we know have a countercyclical mandate. They played a crucial role in providing financing and working capital needs for corporates and banks, as well as supporting emerging market infrastructure projects that otherwise wouldn’t have been funded. During this time, we really developed our partnership with public agencies.

Spears: The SCOR PCR team certainly didn’t have a pandemic playbook. However, we have a set of underwriting principles that we follow. It’s really simple to take risk on companies that are generating operating cash flows, and focus on sovereigns that have the ability to repay their external debt. Something like 85% of credit losses came from the triple C space and the remainder in the single B space. It’s likely that most of those companies weren’t generating positive operating cash flow, though I could be wrong. Our underwriting approach remains the same; whether it’s a pandemic or a financial crisis, keep it simple and straightforward.


Glover: Atradius has talked about a rise in insolvencies of 33% for next year. Do you think that the insurance market is ready for a dramatic increase in non-payment claims?

David: I think we need to put things in perspective. Where we are now is historically low. So we’re actually saying that it’s going to get back to normal. I don’t see any problem for carriers to get back to that.

Letondot: I would add also, and I’m not being flippant about this, we need some manageable losses in order to show the proof of concept. If we don’t pay losses as an industry, people don’t have a reason to buy the product, especially since it’s a discretionary buy here in the US.

LeClaire: We have been in business for a very long time and weathered economic downturns, recessions and now a pandemic. It is a constant learning exercise. However, we insure companies based on the information that we have, and using the playbook of the pandemic today, relying on financials that are two years old for a sizeable credit limit is not an option.

We see increased collaboration with our clients, our bank partners and our broker partners in getting good information. Many times we have heard, ‘well, you’re the insurer, insure it’. It doesn’t really work that way, does it? To have current, quality information to make those decisions is all that much more important, because as we all know, when the world stops turning, things can look very different, very quickly. Relying on old information in a crisis of this type is not a prudent approach.

Ettien: Some controlled losses certainly help market the product. I know the banks were thrilled to have trade credit insurance in place during the pandemic, even though there were no losses paid, because the value was there and they didn’t have to worry about managing it without the security blanket of the insurance.

It’s funny, a lot of the bank programmes are purchased for monetisation purposes, and risk is a by-product. But here that by-product really came to the forefront.


Glover: Let’s move on to the climate transition. What role does the insurance market play there?

Spears: The SCOR PCR team has defined its purpose as supporting responsible and tangible investment and finance. As part of that we have embedded a set of ESG principles that we have developed as a team into our underwriting. We track ESG ratings of companies, we track the instruments, and if they fit certain criteria.

The business has changed from many years ago. Today, we are supporting the building of renewable projects, offshore and onshore wind – whether it’s in the United States or in Argentina, we’re also supporting the development of lithium, copper and cobalt mines, which are critical to all of this. On the social side, we’re involved in the building of fibre lines to rural households, hospitals, and so on, around the world. I think it’s really powerful that, because of our support, banks and other parties are making these investments or providing these loans and we’re facilitating them.

LeClaire: We look at it in a couple of different areas. In line with Allianz, we’re committing to supporting businesses to help facilitate a transition to a low carbon economy. The Green2Green project is a single risk type solution through our TCU group, supporting green projects, where the premium earned is reinvested into a green project, completing a green loop.

Letondot: What does ESG mean? We’re working hard to try to get both a quantitative and qualitative view on projects. We hope that one day underwriters might provide more capacity, maybe on pricing or on structure, for those companies that are trying to do the right thing in terms of ESG.

Ettien: We need standardisation. ESG has been a buzzword all around the world, but how do you quantify that in the financial services industries? Where do I go as a trade credit unit to find out if this company that I’m quoting is a company that we should deal with from an ESG perspective?


Glover: There have been various efforts to digitise the client-broker-underwriter relationship: how do you see this progressing? What digitisation initiatives best serve the trade credit and political risk insurance market?

Spears: The pandemic has been a catalyst for us to adopt e-placement tools. Many of them have worked well. There are two issues as I look out over the medium term. The first is that the market has not consolidated around one of these platforms, and so we have seven or eight different platforms, each with their own logins. The second thing, which is actually the most frustrating, is all of us are trying to get economies of scale, but what is preventing that is none of these options actually send structured data to our systems. It’s just a convenient way of putting a stamp down or signing an endorsement. Across the industry, when an enquiry comes in, or a policy is placed, all of us are entering that data into different systems. The key is really having structured data, and sending that from client to broker to underwriters to reinsurers and, maybe in the future, to regulators. That is what needs to be tackled in these systems going forward, because that is what will bring huge efficiencies that allow us to do a lot more with our time.

Letondot: Once you can digitalise and commoditise credit risk, then you can package it more intelligently to sell it to insurers, but also sell it outside to cash markets. If we and the insurers don’t do it, the securitisation world absolutely will.

Egnell: We’re a bit reluctant to invest much more on the frontend because it seems that every time we talk to a bank or a fund, they’re telling us they are coming up with a new platform or interface. Instead, we’re investing more on the backend – how do we digitise the sharing of information? How do we digitise any data that we have? How do we optimise it? And how do we leverage AI and algorithms in the most efficient way? We’re not looking to replace underwriters, but it’s going to be really an efficient tool at their disposal, covering off the repetitive tasks and types of business. That’s what we’re focusing our attention on.