Credit insurance update--2009.(selected topic)

"You never know who is swimming naked until the tide goes out."--Warren Buffet

Previous credit insurance updates printed in this magazine have been about profitability and operational issues, but it seems appropriate to focus on the claims and contract considerations in these unprecedented times. Needless to say, many of you with a limits underwriter have had the frustration of recent coverage cancellations, or finding out your policy may not cover you for one reason or another. This article is designed to help you understand the current insurance environment and how to navigate the difficult waters ahead.

Cycles are normally close to the heart of many credit professionals. We should all be aware of what type of cycle we are currently experiencing and adjust our risk orientation and strategy accordingly. According to many of the "experts" with whom I have spoken, this is an extended recession, possibly the worst in 30 years, if not 50 years, depending on the optimistic or pessimistic viewpoints.

Credit managers and finance executives both want to know why their debtors are not coverage worthy in this environment. Simply put, the rules have changed, and the debtor that didn't provide financials last year is no longer an easy decision. In no place is this more evident than with the credit insurance companies. In general, the coverage is much tighter, while rates and deductibles have increased accordingly. Several of the carriers, such as Euler Hermes ACI, Coface and Atradius issued memos explaining a need for increasing premium levels by at least 10%. This is not surprising, and you may recall that the March 2007 "Credit Insurance Update" in this magazine stated that these premium levels were not sustainable.

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Coface

Led by a strong underwriting team, Coface seems to be maintaining the "business as usual" mentality. It is continuing to place new business, while maintaining the coverage with existing clientele. According to a statement from Coface, "The loss ratio, after a low level of 49% over each of the years 2005, 2006 and 2007, remained controlled at 55% in the first half of 2008. Claims increased in number by 20% compared with the same period in 2007 and by 37% in amount because of a proportionally higher deterioration of solvency for medium and large companies (increases in the first half of the year were 12% in number and 53% in amount)?'