The political and regulatory uncertainty in the European Union could push trade credit insurance premiums up, says the International Credit Insurance and Surety Association (ICISA).
In its 2013 outlook, the association mentions a mixed picture in the current market, with a general downward pressure on average premium rates, but points out that markets in Southern Europe in particular are expected to harden up.
Robert Nijhout, ICISA’s executive director, explains to GTR: “The market is expected to harden in Europe, including the UK, but also in Australia and New Zealand. This means that conditions will be stricter, there could be larger retention, higher thresholds, less capacity for high-risk deals, but of course it will depend very much on particular deals. An upward trend in the premiums could be a very likely result of that.”
He adds that on top of political uncertainty and the effect that member states exiting the EU could have on the market, the lack of clarity over how the Solvency II and Basel III regulations will be implemented is cause for great concern.
“There is concern about the situation in Spain and Portugal and whether this could deteriorate further and affect other areas. The recession doesn’t seem to be going away, southern debt being one of the main concerns there. Our members call for clarity on when Solvency II regulations will be implemented, and the great lock in this process is the uncertainty, which is not desirable in our view,” he says.
ICISA sees the market softening in Asia and the US, and expects growth in demand from China, India, Vietnam, Myanmar, Angola, Mozambique, the GCC and the CIS.
In terms of political instability and volatility, the organisation views the Mena region, southern Europe, but also parts of Africa and South America as a main focus.
ICISA is also keeping a close eye on Brazil, monitoring a risk of “overheating” in the economy.
“Companies could overextend themselves on the credit side, they could take more on than they are able to, because there’s been a huge peak in a short period of time, and there are not necessarily more players to adjust that in the economy, which could lead to nasty consequences. We are not saying that this is the case in Brazil; for the time being things are favourable but we do look at it with that particular concern in the back of our minds,” says Nijhout.
He also points out that despite difficult market conditions that could lead to changes in credit limits and risk appetite, the policy renewal rate among members of the association is “extremely high”, adding that “competition is fierce and this is reflected in quite liberal offers to clients”.
Finally, Nijhout explain that the rise in trade credit insurance demand comes mostly from corporates, despite banks having always been vital partners to the industry. He says: “Banks have their own problems at the moment, which has resulted in much stricter financing by them, which again has a negative effect on trade, something which is an ongoing concern to us as well. With Basel III regulations it is still not entirely clear how things will pan out with regards to the role trade credit insurance will play as security. In theory we have a lot of information on this but we need to see how things develop in the coming years and how that translates into bank behaviour.”