Monte Carlo Digital Forum: Trade credit, Covid-19 and technology
The Covid-19 pandemic has had such a profound effect on the trade credit insurance sector there are some who question its current validity.
Trade credit is undoubtedly creating much of the current industry narrative. According to analysts at Morgan Stanley, “trade credit insurance market losses due to the Covid-19 pandemic could reach as high as $46bn, with reinsurers perhaps taking as much as 30% of the hit”.
In its latest economic update, Euler Hermes said that the Covid-19 crisis has resulted in market volatility reaching levels unseen since the financial crisis, and forecasting that global trade is not expected to return to pre-crisis status before 2023. It has left brokers and their clients using the cover to facilitate funding and reduce risk questioning whether it remains a robust business tool. This is an especially pertinent question given that, in response to the crisis, many underwriters have been pulling or reducing limits to reflect the increased risks and growing insolvencies.
It has prompted governments to intervene in an effort to support international trade and reinsurers have been asked to play their part.
The intervention of global governments has done much to smooth the credit insurance sector’s struggles. Credit insurers' losses from the coronavirus pandemic are unlikely to be as large as in the 2008 global financial crisis, due to these government trade credit backstops, as well as overall measures to aid the global economy.
Fitch Ratings said it expects pandemic-related credit insurance claims to peak in late 2020 and continue well into 2021, but credit insurers' financial performance should then improve as they re-underwrite business at higher prices to recoup losses and meet higher demand.
Governments were quick to recognise the crucial role of trade credit insurance in supporting company-to-company credit. But the solutions have not been created in isolation.
Insurers have been keen to reduce exposures and that has triggered agreements with various governments, adding to the protection they already had in place against large losses through their existing reinsurance programmes. Credit insurer Coface, for example, had about 50% of its credit exposure covered by government support schemes at end-June 2020.
Government support mechanisms include proportional reinsurance treaties – such as the quota-share programme in Germany, whereby the government takes 65% of the insurance premium and covers 90% of claims. Similar arrangements are in place in France, the Netherlands and the UK, with different cession rates.
Some governments are also providing supplementary cover above the limit provided by the insurer.
However, it is clear governmental involvement will be transient and expectations that trade credit insurers and their reinsurers will once again operate without any public backstop are growing.
The expectation is that demand for credit insurance in the medium to long term will increase as a result of the pandemic, as corporates and small and medium-sized enterprises increasingly recognise the benefits of having cover.
However, the fragile nature of the global economy has created uncertainty and it has left re/insurers questioning how to manage these risks and what tools they need to capitalise on upcoming market opportunities.
In this innovative solutions session AdvantageGo will explore how technology can aid the ability of re/insurers to meet the challenges.
The session will examine how the market can:
Increase the demand for credit risk insurance
Deliver tools to manage exposures and aid risk selection
Understand how automating exposure management can reduce the risk of costly errors
Don’t miss out on this opportunity to understand how the right technology capabilities can facilitate the solutions to many of the sector’s pressing issues. Click here to register your interest.