As macroeconomic and geopolitical headwinds gather force across Asia, uncertainties loom over the trade credit insurance market. With risks on the rise as well as opportunities for the taking, how well prepared is the sector to withstand coming storms? Eleanor Wragg reports.


The trade credit insurance market in Asia is facing a period of transition as economic dynamics evolve across the region. Years of strong growth fuelled by expanding trade and domestic consumption have given way to a more mixed outlook, with headwinds emerging in some large markets.

Against this backdrop of rising uncertainty, during GTR Asia 2023, GTR convened a panel of experts from across the risk value chain to gain perspectives on the myriad pressures set to test industry resilience in the months to come.

Keeping up with macro shifts

While the prospects for the world’s economy have weakened, Asia’s outlook remains slightly brighter, but sluggish global demand, geopolitical tensions and tightening monetary conditions are taking their toll.

According to the latest projections from the International Monetary Fund (IMF), economies in Asia are set to expand by 4.6% this year and 4.2% the next. Although this is ahead of global GDP growth, which will just about scrape 3% for 2023 and 2024, the figures remain weak by historic standards. The cracks are already starting to show, with World Trade Organization economists predicting the region’s 2023 trade growth will drop below the global average for the second year in a row.

“It’s been a red year so far for trade,” said Angelia Toh, trade finance structurer for Asia Pacific at BNY Mellon. “I have seen a significant dip in traditional letter of credit flows as people look to go towards open account, as it’s perhaps a less costly and more flexible way of doing business. Against this backdrop, it is then more challenging for banks to originate and do deals.”

The headline story for Asia remains the slowdown in its centre of trade and economic gravity, China, which is continuing to drag on broader activity as both exports and imports soften.

“A lot of our clients and customers within Asia are obviously linked into China in some way, be that supplying into China or having their manufacturing there. They are continuing to do business in China, albeit at slightly lower levels, and we are continuing to support them,” said Sam Ladbury, head of Asia political risk and credit at Chubb Global Markets.

“However, what we are seeing now is a real diversification from a supply chain resilience point of view, and we see customers now starting to move, or placing their bets in multiple places,” he added. “We are receiving an increasing number of enquiries from both corporates and banks to support trade and investment in markets such as Vietnam and Indonesia.”

New regional dynamics

As financial institutions follow their clients to new markets, as well as seek to diversify revenue streams amid a tightening trade landscape, the role of trade credit insurance is becoming increasingly important as a means to allow banks to distribute their exposure.

“If I don’t have a physical presence, it’s understandable that I don’t have free appetite in terms of granting credit limits. Partnering with insurers who have the expertise and experience in that market that I don’t have is a door opener for me to look into new markets and diversify my revenue streams in the long term,” said Toh.

Although Southeast Asian markets have been the main beneficiaries of supply chain shifts away from China, India’s projected GDP growth of 6.3% this year could translate to substantial volumes of new commercial activity across a broader range of sectors and risk profiles than those found in more concentrated markets – and insurers are taking note.

In response, Allianz Trade has recently appointed a new country manager for the South Asian giant, with further investments planned this year.

“We’ve always been present in India, but it has been more to support our multinational customers,” said Shan Aboo, the insurer’s Asia Pacific chief commercial officer. “We have now developed a commercial strategy for the market because the opportunities there are just tremendous. Over the last few months, the amount of enquiries that have been coming in from customers who have never had credit insurance before, both from a domestic and an export point of view, has been very significant.”

Tackling emerging challenges

Better debt recovery mechanisms stemming from the country’s 2016 bankruptcy code reform are also boosting underwriting appetite for Indian risks, with Chubb’s Ladbury calling the new regime a “game changer” that has enabled more competitive risk pricing as a result of increased certainty about the chance of recovering bad debt.

However, after several years of strong growth and low claims ratios across Asia’s trade credit sector, conditions are expected to become more challenging in the near term as insolvencies start to rise from their recent unnaturally subdued levels. According to Allianz Trade’s latest Global Insolvency Report, published in October, the region will see a 5% year-on-year uptick in bankruptcies in 2024, followed by a further 3% in 2025.

While the claims environment will test underwriting discipline, industry sources expressed confidence that portfolios have strengthened through prudent capital management and quality risk selection.

“What we’re finding when working with banks is that the portfolios that come to us are quite strong,” said Lee Garvey, regional head of financial solutions, Asia Pacific, at WTW. “What’s been very encouraging for us on the broking side is the acceptance ratio in terms of the portfolio that’s presented to us and the actual amount of support that comes back from the insurers. That’s testament to the effort and the resources the insurers have, but also to the fact that insurers see the value in working with banks given the positive filtering process they undertake.”

Nonetheless, Allianz Trade’s Aboo noted claims volumes as of July 2023 have already surpassed pre-Covid levels, and are up 48% from last year, although he stressed that this comes from a low base. “Over the last three years, we as insurers have built a lot of reserves to make sure customers are backed, and we pay claims,” he said.

“Claims will certainly rise up,” added Tyler Wendleken, Asia trade credit leader at Marsh Specialty. “In terms of the insurers responding, our clients’ experience has been very positive. There is a very low level of declines of claims submitted.”

As prices harden and demand grows, industry players are keen to address misconceptions around the extent to which credit insurance supports trade even during tough times, and so far, the market is maintaining stakeholder confidence.

However, while claims fulfilment capabilities remain resilient, the trade credit insurance market’s long-term prospects remain tethered to macroeconomic currents beyond its control. Since downturns often breed deception as struggling firms seek to profit from insurance payouts, fraud risks in particular pose a threat to profitability if not addressed.

“We’ve noticed an unmistakable pattern that whenever times are tough, people try to monetise their credit insurance policy,” said Ahmed Madkour, Middle East claims and recovery director at Recovery Advisers, a company specialising in credit insurance claims and recovery management. “When there’s disruption, there’s a spike in fraudulent claims, and this is across the board in all industries. It’s there, and it’s part of the business: where there’s finance, there will be fraud attempts, so it’s just a case of reducing the cost of throwing out these fraudulent claims.”