Senior leaders in trade credit and political risk insurance gathered in New York in late 2022 to discuss the top themes and challenges facing the US market. On the agenda was the continued impact of Covid, macroeconomic headwinds and efforts to expand the product by engendering new relationships between brokers, insurers and banks. The discussion was hosted and chaired by Chubb.


Roundtable participants:

  • Joseph Glover underwriting manager, political risk and credit, Chubb (host and chair)
  • John Lavelle, director, BPL Global
  • Christophe Letondot, managing director, Marsh
  • Harpreet Mann, president, Amynta Trade Credit and Political Risk Solutions
  • Nasrin Nourizadeh, head of business development and marketing, FCIA Trade Credit and Political Risk, Great American Insurance Group
  • Scott Pales, senior vice-president, trade credit and political risk, WTW


From left to right: Harpreet Mann, John Lavelle, Nasrin Nourizadeh, Scott Pales, Christophe Letondot, Joseph Glover


Glover: We might have learned to live with the presence of Covid but are there more defaults to come for pandemic-affected credits? Has insurer appetite returned to some of the sectors most impacted by Covid?

Nourizadeh: FCIA has always been known to be a disciplined underwriter. We are very cautious. For that reason, we are careful about debt maturities and the ability of the buyer to be able to refinance. Every case is different, and we pay attention to all of those details. We expect to see more activity in bankruptcies and the inability to make payments. We are already seeing some requests for rescheduling. We expect this trend to continue, and we don’t think we are out of the woods yet.

Mann: We’re still cautious. During Covid, the shutdowns created sudden change for many sectors. If you think about sectors like the cruise lines, it wasn’t just the economic impact of the shutdowns. Some of the cities where these cruise ships used to dock realised how much better it was for the cities when cruise ships did not dock, and the economic impact was minimal. You’re always trying to think, what did we learn from Covid? What’s changed as everybody’s coming back to work? As we look forward, we’re focused on how companies have prepared for life beyond the pandemic and the resulting shifts in consumer behaviour.


Glover: In addition to the supply chain issues, we’re dealing with the invasion of Ukraine, an energy crisis in Europe and record inflation in most economies. Some of these issues have impacted North American clients and borrowers to a greater or lesser extent, but what are some of the consequences of these headwinds to portfolio or appetite, for insurers, and demand for cover, for brokers?

Lavelle: What really impressed me was how our market responded during Covid with new products. During the pandemic, we had a good deal of corporates draw down on their revolving credit facilities and their term loans, and all of a sudden credit groups within banks were scrambling to get cover. We saw an influx of bank requests coming in to cover bank loans to corporates that wanted to have cash on hand because no one had been through a situation like Covid before. We were able to find lots of homes, mostly through London, for those term loans and revolving credit facilities to satisfy the banks.

We can go back to the days of 2008, 2010 and the global financial crisis: the market responded greatly through that. The industry put more capital into the market by offering credit cover for banks and corporates. I think the same thing happened during Covid and it’s happening post-Covid. Now, we’re dealing with a different world of circumstances I don’t think anybody’s ever dealt with. But the market for the most part has been stable and there have been innovative underwriters that have come up with products and solutions to help put more capital into the marketplace.

Letondot: In terms of losses, a report prepared in London showed that in 2021 – the last full year for which information has been compiled – paid losses to banks were close to a billion dollars, which is quite extraordinary. It shows that the product works, which is great.

Nourizadeh: The job of our underwriters is to take the case and analyse it by looking at financial statements, revenues, and all the risk factors. We cannot take a broad brush and view all industries or sectors together. But that doesn’t mean that we were not careful with industries such as travel, entertainment or sectors that are seeing some headwinds.

Letondot: We have tried to pivot the value of the credit insurance product from being not just about protecting the balance sheet, but also about improving liquidity. In 2019 and 2020, companies were starved for cash, and we were able to use non-payment products – trade credit in particular – on clients’ accounts receivables to help generate liquidity.


Glover: How has Covid affected the supply chain business?

Lavelle: The pandemic helped fuel the supply chain demand in the US tremendously. There was a huge upswing in supply chain requirements.

Glover: There seem to be many more requests than those that actually end up finding a home, but it’s good to see that banks are turning to the insurance market for support there, even if the hit rate is sometimes disappointingly low.

Nourizadeh: During Covid, probably what kept most of our underwriters going was the supply chain coverage that we provided. I think the banks were very busy and we were busy supporting them.

Lavelle: I was looking over some of the Covid supply chain and the names posted. They were investment-grade names that the market collectively had never seen before. We saw demand for various BBB, A-, and even an A+ credit. I think it helped the banks understand that the product isn’t just for those credits that are below investment grade, but that it is there to support the credit departments of banks for multiple reasons.

Also, there was a high tech-boom during the pandemic because people were staying home. This meant that tech companies had to boost their channels with products because of increased demand. It flooded the dealer-distributor network. So those dealer-distributors and the companies need more supply chain solutions to support that because that was their capital base. If you look back as we do now, it was an amazing set of circumstances that helped this industry establish itself even further and make inroads further into certain financial institutions and corporates.

Pales: It could be that supply chain finance really launched the big push in portfolio business we’re seeing now too. It seems cyclical: supply chain jumps up, and then we see portfolio business jump off. I think that could be the driver for why we’re seeing so many portfolio transactions.

Mann: Every US broker we’ve spoken with indicates that there will be increased submissions from financial institutions. We’re definitely seeing more inquiries for supply chain transactions. It’s interesting to see financial institution business becoming a larger part of our portfolio than has been the case historically.

Pales: The banks we’re working with are estimating a five-fold increase in transaction activity, largely due to the recessionary environment and where interest rates are going. Accounts receivable purchase programmes are estimated to see a substantial increase.

Letondot: We have seen some banks change their models in order to reduce capital requirements. For example, some banks are adopting a ‘source to distribute’, rather than a ‘source and hold’ approach. As a result, they’re going to be syndicating out and otherwise hedging the risk, insurance being a primary solution. And we may see fewer banks doing more business. But from the underwriting side, once you’ve done your due diligence of the bank you want to work with, that’s probably a good thing, as it will likely increase the volume of transactions with that bank.


Glover: When it comes to new clients, what due diligence do you undertake on a new-to-market insured and why is that important? How do you go about engendering a partnership with your clients?

Nourizadeh: As an insurer, we have been writing bank business for decades, and have extensive relationships with banks. But not all banks are equal, and not all banks buy credit insurance as much as others. The reality is that many of them take a very long time to close a deal. That can become frustrating for the brokers and underwriters. One of the things that sometimes creates fatigue among underwriters is the amount of time spent on the policy wording. Now, almost every bank wants to have its own policy wording and that means a lot of time being spent on tweaking the wording where it could be spent on underwriting the deal.

Mann: Our approach is not to be everything to everyone in the bank space, but to develop deep relationships with a few banks. Returning to the policy wording, underwriters have to approach the bank business a little differently than traditional trade credit insurance and understand the bank’s motivation for purchasing the insurance – to make sure it’s not because the bank doesn’t like the risk, but there’s a solid business reason like capital relief – and understand what the bank’s process is for approval of limits. How many committees do they have to approve an obligor and what is the level of due diligence the bank needs to complete?

Information sharing is also great. Not all banks share their internal analysis, but if they do, such transparency is valued by the underwriter. Being able to cover multiple transactions is helpful too. Once an underwriter invests the time, especially with the policy wording, we want to make sure we have a relationship where we’re going to see multiple deals over time.

Letondot: In the financial crisis, some insurance companies and monoline financial guaranty companies got their fingers burned because the banks were packaging a particular type of risk, restructuring and selling it off 100% with zero retention. Today, banks approach insurers much more on a partnership basis and are more open with information. It’s also helpful to know, even for us as brokers, who we are speaking to. Are we speaking to a pure deal team or the loan team or the syndicate? As much as the underwriters need to understand the bank, the banks need to understand the underwriters. The more time we spend together understanding each others’ processes, the better the acceptance and growth of the non-payment product will be. Also, these ongoing discussions will increase the probability of success and reduce possible frustration when there’s a low hit ratio.

Pales: The policy language represents hours and weeks of work. Once you get through the language, it also tends to create a relationship in stickiness between that particular underwriter and a given bank, because you’re invested already. There’s a plus side to all that work.


Glover: Brokers, do you come across any frequently held misconceptions about the insurance product?

Lavelle: When you talk about the brokers’ roles, they set expectations within that bank. Some of these transactions aren’t as easy as we all think they are. They have to deal with some complications like financials, loan covenants and other circumstances with the company. These have to be explained, especially when you look at some of the project finance deals that have been put forward lately. If your underwriter is frustrated with a broker and a bank, that’s not a good start. It takes a lot of front loading before that bank deal should be in the marketplace.

What I think has historically happened is that the product has always been in the trade finance area of banks. Now we’re in corporate lending, we’re in project finance, we’re even putting tentacles into the investment side of banks. All the various groups within the same institution, within their own silos, have to understand why the people in trade finance are getting a credit insurance product, and they might ask, why don’t we use it? The expectation has to be set within the bank, and the broker has to understand that sometimes you have to say no, the deal is not going to fly.

Letondot: One of the things that we as brokers have done is to try to have as many touchpoints within the banks as possible. How credit risk is created should be secondary to whether it is created for the right reasons – the alignment of interest to support the bank’s clients, and so on, rather than trying to arbitrage a situation. With some banks, there’s an ‘aha’ moment when they realise that non-payment insurance is flexible and can be used in a lot of areas. That’s why we strive to elevate the discussion of non-payment insurance to different parts of banks. For example, in addition to the deal teams, we would want to speak to the team that manages the bank’s regulatory capital.


Glover: Insurers, is bank client selection becoming more important? Brokers, are insurers receptive to efforts to expand into regional banks or are they focused on the top US banks?

Nourizadeh: At the end of the day, banks are an integral part of our business. We have to work with them to get them comfortable with the product and the programmes that we have together. I would say that 60% of our business, one way or another, is related to banks, and therefore they have a big say in the marketplace regarding what they want. It is completely fair to follow what their needs are, so long as we meet our underwriting criteria and the regulatory requirements that we have to follow.

Mann: The value of the product is established at the moment of truth for policyholders – when a claim has been paid. There have been significant claims paid for the banks. The insurance carriers paid them, and worked with the banks on recoveries in some instances.

Letondot: From day one discussions to closing the transaction, it takes time for a client bank to understand what the product is, what it is not, and what it does. Some of the big European and Japanese banks have benefited from regulatory capital, so that is a more straightforward discussion. The big second-tier American banks don’t necessarily benefit in the same manner as non-US banks, so we need to sell the non-payment insurance product differently. If the non-payment insurance is bought to address limits, it can allow a bank to take a bigger portion of a transaction and insure it rather than syndicate to the competition. Thinking about the work ahead of us collectively as an industry, the penetration of non-payment insurance in the US compared to Europe is de minimis, for example. It’s beneficial for everyone to be on the same page, and think about how to do it intelligently and somewhat uniformly.

Lavelle: The regional banks have historically been captured by the ECAs – that was their ticket. Having worked at US Exim Bank, I can attest that a lot of the regional banks renewed larger users with Exim Bank programmes. There’s of course a change in that view, but the regional banks are refocusing on the US. Some of their solutions, and what they’re asking for, are not necessarily the same as what the European and Japanese banks are looking for. They are probably more in tune with the supply chain product. I’m working with a couple of regional banks now and with one of them, I’m already over three years into it. We’re getting there, but it’s a long process. I think regional banks are going to look to a particular product line, whether it be supply chain or maybe capex funding to name a few.

Letondot: With supply chain finance, we’re seeing new entrants with underwriter support, but for those smaller regional banks to have portfolio-based accounts receivable financing, they need platforms. Whether they have fintech support or go to a third-party vendor that provides those platforms, it’s going to be those upper-level banks with self-built platforms that can handle tens or hundreds of thousands of invoices as compared to a supply chain finance transaction. I think the product is also going to be more regional bank-targeted from a supply chain finance perspective than on a portfolio basis.

Nourizadeh: Other products have been more of interest to smaller banks: buyer credit, letters of credit and export and import financing. When it comes to regional banks, or second or third-tier banks, clearly we underwrite the bank very carefully because we want to understand who they are, how big they are and why they’re buying credit insurance. There is another layer of caution, basically, if you deviate from these large, well-known commercial banks. At the same time, we’re always open to and look forward to expanding our relationships with other banks. Since our brokers are our sales force, we encourage them to approach the regional banks to introduce credit insurance and what the programme can do for them.


Glover: How does working with corporate clients in the US compare to the banks?

Nourizadeh: We’d love to see more accounts receivable portfolios from corporates as opposed to from banks. Banks are great clients, but they have their own processes. We’re not seeing as many corporate deals as we used to. I’m sure that brokers try their best to get the portfolios, but at the end of the day, they have to sell what the client is ready to buy. We are seeing more single buyers and key accounts.

Pales: Our submission level for corporates is a bit reduced, but I think with the recessionary environment, you’re going to have more triggers for them to investigate the product. They’re also going to be impacted on discretionary spending. It’s a double-edged sword to have a recessionary environment.

Letondot: Firstly, the penetration is low on the corporate side. Secondly, credit insurance has to compete with the banking products – the letters of credit, the guarantees, etc. Thirdly, some products are for the more mature buyer – for example, excess of loss trade credit insurance. Credit insurance remains a discretionary buy, and when rates of other lines of insurance increase significantly, some corporates concentrate their available insurance spend on mandatory or semi-mandatory covers. The last thing is that unfortunately, the buyers of credit insurance are not always the same as the buyers of insurance. It is often difficult to get to the right place at the right time.

Lavelle: We see some of the regional banks do have partnerships with ground-up underwriters like Coface, Euler Hermes and Atradius, where they will require that customers get that type of coverage. The bank does not want to hold the policy and take the assignment of the policy; they want the corporate to do it. But they feel comfortable with that because those ground-up underwriters are running a de facto credit requirement to that particular customer. It really plays in that SME space.

Nourizadeh: We also have a lot of smaller banks that require their borrower to get insurance. I think the product is there, but the lack of awareness about the product is the biggest challenge. The only time we ever see mention of trade credit insurance in the newspapers is when there is a crisis. I’ve seen it twice, once in the financial crisis and then during Covid. A lot of banks and corporates have never heard of credit insurance. If we can create more awareness about what the product is, and how it can help the banks, I think we would have a much bigger pie in the US.

Mann: It is important to not only create awareness of the product but use examples of how it works. There are financial institutions that say because their claim was paid, there was increased internal support for the insurance product. The claim payment demonstrated how the policy worked when an event of loss occurred. We as an industry should feel free to share general information about the claims that were paid.

Lavelle: If you look at some of the major US banks, they have 9.8% of US deposits. They can’t go beyond 10%, as the Fed won’t allow that. Some European and Japanese banks have had a tough time against some of the US banks lending to certain institutions, because they can come in and lend at an incredibly low rate when historically the European and Japanese banks are at a different funding cost factor.


Glover: This is not a normal renewal season. I think that’s certain. What has been the impact so far of a hardening reinsurance market on appetite or terms?

Nourizadeh: From what I have heard, anecdotally, limits will increasingly come at a cost. Insurers that have been in business for a long time, with a proven track record on their quality of business, losses, recoveries and relationships, are probably better positioned for getting a better rat