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31 May 2016

Welcome to the 7th edition of our Credit Insurance newsletter - Talking Credit FOO

Welcome to the 7th edition of our Credit Insurance newsletter - Talking Credit
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Welcome to the 7th edition of our Credit Insurance newsletter. We hope it will prove thought provoking and highlight some topics that will be of interest to you..

The Team Continues to Expand

We have undertaken a significant investment in the business which will result in 6 additional personnel joining us over the course of the first half of 2016. This underlines our position as one of the largest Credit & Surety brokers in the UK. With 35 personnel operating from 5 locations we are able to provide cost effective risk transfer solutions for businesses from SME through to Global.

Insolvency Forecasts

Notwithstanding the improvement in the economic environment the risk of insolvency (and resultant bad debt) is higher than many might think.

The following comments were kindly provided by Atradius Credit Insurance NV earlier this year. Atradius are a world leader in credit insurance and debt collection. They provide trade credit insurance, surety and collection services worldwide with a strategic presence in 50 countries.

Atradius forecasts very little to no improvement in insolvencies in the majority of advanced markets in 2016. Only a 3% improvement is expected, the lowest since 20121.

The challenging external environment and low  commodity prices are increasing business risks and bankruptcies could pick up in spite of strengthening domestic economies.

Across many advanced markets, business risks are expected to increase in 2016 after the positive developments seen in 2015. Atradius forecasts very little to no improvement in the majority of markets in 2016, with risks to the outlook sharply to the downside – stemming from low oil prices, US monetary normalisation and the uncertain impacts of a slowdown in emerging markets.

The level of business bankruptcies around the periphery of the Eurozone remains remarkably higher than before the onset of the global financial crisis. Portugal’s level is 4.4 times higher than in 2007; Italy’s is 2.8; and Spain’s is 2.52.

Overall, the Netherlands and Spain are forecast to see the most improvement again in 2016. The booming economic recovery in Ireland, the other top runner of 2015, is expected to slow down slightly this year, with insolvencies only forecast to fall 6% and, like in Spain, to remain over twice as high as before the debt crisis3.

Information Sharing

A credit insurance Policy doesn’t just provide insurance. Another primary benefit is the feedback regarding the financial position of ones customers. Credit insurers maintain extensive databases of up to date information on companies. Very often this is obtained by direct contact with the companies and includes data which is not in the public domain.

Underwriters understand  they must share this information with clients as far as they can so that policyholders avoid bad debts wherever possible. Underwriters will meet with clients to discuss the main risks, and information is shared both ways. The Policy therefore can help steer a business in the right direction and therefore avoid or minimise bad debts, as well as paying claims if bad debts do still occur.

Nil Limits often have a Timespan

Credit insurers are becoming increasingly flexible as they move with the times and respond to clients’ needs. They always have the right having reviewed a company’s financial position to decline to cover them as a risk and to put a so-called “nil limit” in place.

Such limits used to remain in place indefinitely or until superseded by a positive limit, but now with an increasing number of insurers the nil limit will automatically lapse after a certain period of time and thereby opening up again the opportunity to obtain cover.

The Consequences of Trading Uninsured

Annual statistics from InfolinkGazette note there were 182,000 unpaid and unsecured creditors from UK company Liquidations and Administration in 2015 compared to 134,000 in 2014 with total losses increasing from £8.4 billion in 2014 to £17 billion in 20154.

Unpaid and unsecured creditors lost an average of £95,000 in 2015, up £24,000 on the 2014 average of £60,500. Ordinary Trade Creditor losses from liquidations continue to average around £32,0005.

Greg Connell, Managing Director of InfolinkGazette commented: it’s hardly surprising that the biggest losers are HMRC, the Banks and Utility companies but every week there are over 2,000 ordinary trade creditors experiencing unexpected losses of over £30,0006, when one of their customers enter liquidation.

Credit Insurance - State of the Market Update

Competition amongst insurers for good quality business and especially new to market cases is high. Premium rates are not at this time showing any sign of hardening.

Overall insurers are writing more cover than they did prior to the global economic downturn. Please don’t hesitate to contact one of the Arthur J. Gallagher Credit & Surety team if you would like to discuss the opportunity in more depth. We are always happy to help!

1 / 2 / 3 Source: insolvency-forecasts- february-2016.html. 4 / 5 / 6 Source:

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