Changes are afoot in the credit insurance industry in the wake of its recovery from the credit crunch, writes Kevin Godier.

Few insurance market observers and participants will fail to remember the outcry in late 2008 and early 2009, when the so-called ‘Big Three’ credit insurers that control some 80% of the industry – Atradius, Coface and Euler Hermes – slashed back their credit limits on clusters of buyers in various sectoral and geographical zones.

The criticism this attracted has seen these three insurers looking to ensure greater certainty of cover for clients, “by providing extended notice periods before cancelling limits, or offering penalty structures that will react to reduced risk appetite levels”, explains Rupert Murray, executive director political, project and credit risks at Gallagher London.

Murray notes that the “desire for continuity of cover” among insureds has nevertheless increased the attractiveness of a growing group of excess of loss insurers – the biggest of which is Chartis – whose non-cancellable credit limits on buyers have proved extremely attractive.

“These insurers generally maintained a more level-headed approach during the credit crunch, and their behaviour has been recognised by insureds that may not have previously considered an excess of loss facility,” he stresses.

New players

Over the past year, several new insurers have brought additional capacity into the trade credits insurance market, “bringing talented, experienced underwriters, plus additional non-cancellable cover, which is very much needed in the marketplace”, observes Michael Kornblau, US trade credit practice leader at Marsh USA.

Large corporates are now looking seriously at the product for the first time in the wake of the financial crisis,”

“In the US market, this trend is very much a response to an audience that is now more knowledgeable on credit losses. Large corporates are now looking seriously at the product for the first time in the wake of the financial crisis,” he says.

One of the first to see an opportunity was Markel International, which began writing trade credit and political risk business in April 2010, focusing on trade credit excess of loss policies both on a multi-buyer or single debtor basis, and expanded its team further in late 2010.

“We saw a market gap,” underlines Ewa Rose, divisional managing director, trade credit division, Markel International. “Before the crisis, there was just a handful of excess of loss players, whereas every insurer is now looking at this product.”

The credit insurance industry had no choice but to evolve.”

Rose points out that excess of loss credit insurers fared better during the crisis in terms of notified claims and losses, and that their clients benefitted from the stability of their credit insurance policies. “The concept of cancelling limits on buyers has clearly proven to have caused some bad blood with insureds, whereas we will not penalise clients by adjusting our own book without regard to the clients’ own loss experience or credit management expertise,” she notes.

Rose argues that the credit insurance industry “had no choice but to evolve”.

“There are obviously other solutions out there, and so our business model involves competing on service. That includes quick decision-making from underwriters that deal with every aspect of the business, and adding value in areas such as captive credit insurance solutions, which help to keep premium in our market.”

Another credit insurance newcomer is Equinox Global, which was established in October 2010 and is writing multi-debtor business on both excess of loss and a ground-up basis on behalf of the Beazley and Pembroke syndicates and company market insurers Aspen and Liberty. “This is a great time to come in because the industry is still evolving, unlike most other insurance markets,” emphasises chief executive Mike Holley. “Our key is that we have set up an underwriting mode with certainty of cover and no surprises.”

Equinox offers excess of loss policies with non-cancellable limits, and whole turnover policies where limits may be reviewed or cancelled only if externally produced buyer credit ratings deteriorate beyond an agreed benchmark. “There are three big client markets that we can expand our business into, all with differing characteristics,” says Holley, citing France, Germany and the US.

Latin American Underwriters is another newly-established underwriter offering credit insurance. It started writing business on behalf of Allied World Assurance Company in the last quarter of 2010, and offers a variety of single risk products for both importers and exporters in LatAm.Meanwhile, at the beginning of 2011, Ironshore received a licence award in Ireland that has given it the ability to write trade credit and political risk business in Europe, adding to an existing US operation.

The US market now has over a dozen credit risk insurance providers – including names such as FCIA, QBE, Zurich, Ace and Houston Casualty – a situation which lends itself to some opportunities on large single risks.

New players are very welcome, and we are definitely seeing growth in the product.”

“Companies in the US purchase credit insurance for different reasons from their European peers. They are particularly focused on large concentration risks, where the limits may be as high as US$500mn, and where the capacity needs require syndication,” explains Marsh’s Kornblau. “This means that the new players are very welcome, and we are definitely seeing growth in the product.”

So where does this leave the large players in traditional multi-debtor credit insurance market? “The need to recover profitability means that they have also lowered rates in order to capture more market share and premium income,” says Gallagher’s Murray, adding that this is “good in the short term for the insured, but it does present some cause for concern for the future, because of the potential imbalance between premium income and risk carried”.

Markel’s Rose argues that the key to survival in what remains a hugely competitive market is “to underwrite with discipline during the better economic times, so that the client can trust you will be there with them in the bad times”.

However one area for which credit insurers must all keep an eye on is global political risk. “Around 50% of Markel’s business involves covering exports, but whole markets can turn bad very quickly for reasons that stretch far beyond simple credit risks,” Rose concludes. GTR