After a Strong 2011, Marsh Says Trade Credit Market Has Stabilized

After a strong performance in 2011, the global trade credit insurance market has begun to stabilize, according to broker Marsh Inc..

"The marketplace is very buoyant at the moment, having had a particularly strong year in 2011, where we saw insurer appetite growing," said Tim J. Smith, Marsh's trade credit practice leader for Europe, the Middle East and Africa.

Smith, who spoke during an interview and at a briefing at Marsh's London offices, said Marsh expects premiums to rise this year by between zero and 5%, "amid concerns over the economic climate."

Smith noted the premium rate drops that occurred during the first six months of 2011 and began to steady toward the end of the year.

"With the eurozone potentially looking at zero growth over the next 12 months [and] fears around sovereign debt, the threat of recession is very real," Smith said, noting an increase in caution among underwriters toward debt.

Within Europe, concern is strongest in relation to such countries as Greece, Italy, Portugal and Spain, Smith said. But there continues to be competition, "even in these markets for good quality customers," he said.

Smith also has found strong interest for insurance for risks in Eastern Europe and the former Soviet Union. But, while losses from this region remain low, Smith said, cover can be difficult to obtain. He blamed "the lack of transparency around financial information" in this region.

As insurers have found a big increase interest in trade credit insurance, Smith said, they have also been faced with added exposures in some territories, such as Asia and North America. There are also demands for added covers and concerns among insurance buyers that carriers might review their risks, he said.

Marsh has seen a greater appetite for the cover among clients who do business in Asia and North America, Smith said. He also cited concern about an "extraordinary" increase over the past three or four months in overdue debts. Such trends can be an indicator of future claims.

Smith also discerns rapidly growing product awareness in the Middle East, with the number of inquiries for this region more than doubling over the past 12 to 18 months. Products for Middle East risks still tend to be limited to traditional style policies, he said.

"Insurers are now getting closer to the risk, and asking their customers to do greater due diligence and spend more time on their own credit management," Smith said.

Insurers have created modular product for smaller and medium-size businesses, Smith said. Multinational customers have moved toward "catastrophic-style risks" and are seeking covers that will protect their balance sheets. He said he expects to see greater use of captives, and the growth of such strategies as the use of trade credit insurance for funding.

Smith described the euro crisis as "very serious." He predicted that insolvencies in the eurozone will increase by 2% to 5% in 2012.

Smith said there is the possibility of the creation of a "two-speed Europe" and even a "partial breakup" of the eurozone.

"These issues are reverberating through the trade credit insurance industry," Smith said.

To hear the full interview with Tim J. Smith go to http://www.bestweek.com/v.asp?v=smith312

(By Robert O'Connor, London editor: [email protected])