Corporations Boost Finance with Trade Credit Insurance

Trade credit insurance represents an opportunity to enhance the overall quality of a suppliers receivables portfolio (eg. lets say from B to  BB- rated).  Trade credit insurance can be used for both bank trade finance transactions and trade credit (or inter-firm transactions). see Trade Credit versus Trade Finance – Is there a difference?

Insurance premiums underwritten for trade credit continues on a steady growth pattern, with 2012 trade credit insurance premiums at $9 billion.  The Berne Union, based in London and representing 80 members in the insurance field that provide both export credit and trade credit insurance, indicated that its members insured $1.8 trillion of exports and foreign direct investment, or more than 10% of international trade in 2012.

Why the steady increase?  For one, market conditions are favorable compared to the financial recession, when many insurers found high write-offs and balance sheets that were downgraded by S&P, Moodys and Fitch.   Also, Asian companies are using trade credit insurance more than ever, with premiums increasing 13% year over year to almost $1 billion.

Still, U.S. companies use trade credit insurance significantly less than their European counterparts. Studies have indicated that 5 to 10% of US companies have retained trade insurance, versus up to 70% for European companies.  Part of this reason is the emphasis in Europe since World War II on insurance to foster trade.  The three main insurers – Coface, Atradius, and Euler, are based in Europe.

There are two ways for receivable financing to occur with insurance

  1. In one case, the corporate buys the policy and assigns it to the bank.  Remember, on average, inter-enterprise credit is five times more than the total volume of short-term bank credit .
  2. Banks can also buy a Master Policy and insure the accounts receivables it buys from multiple clients/suppliers


Trade receivables represent an under-utilised asset class, and trade credit insurance is especially relevant in current market conditions as both a risk mitigation tool but also to enable finance.  If a corporation does not have a robust internal credit department (see Even Sellers must manage Credit Risk like Banks) than using credit insurance , especially in volatile industries (retail for example) or those prone to price swings (chemicals, mining) can add extra protection with your trading partners.

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