The US trade credit insurance business is starting to pick up, due in part to the fact that U.S. retailers are struggling.
Trade Credit Insurance
Key drivers are
distress, but also
bank eagerness to
By Gregory DL Morris
After languishing for decades as a small fraction of the trade credit insurance (TCI) market in Europe, the U.S. business has tarted to blossom. There are several main drivers, according to underwriters and brokers, notably the increased involvement by banks in monetizing sales receivables, the first signs of tightening
credit since the great recession, and increasing retail distress and bankruptcies.
According to James Daly, president and chief executive officer of Euler Hermes
in the Americas, the premium value for TCI in the U.S. in 2016 was $717 million,
an increase of 3 percent over the previous year. EH is one of the ‘Big Three’
global underwriters and the largest carrier in the sector in the U.S.
Marsh estimates premium totals in round numbers of about $1 billion in the
U.S., $2 billion in Asia-Pacific, $4 billion in Europe, and $1 billion in the rest of
the world for a grand total of $8 billion worldwide.
Daly detailed that his firm assesses the TCI penetration in a region by number
of possible client firms.
“Our view is that dollar value is distorted. We could write one huge
corporation and that would skew the numbers. Based on the insurable universe
we see penetration in the U.S. at 3 percent of companies, as compared to 10-15
percent of possible companies in Europe.”
In roughly similar numbers, underwriter XL Catlin estimates that something
between 4-7 percent of receivables are covered in the U.S., as compared to 15-20
percent in Europe.
According to estimates aggregated by brokerage Arthur. J. Gallagher from data
provided by insureds, the volume of insured transactions written out of the U.S.
grew from $48 billion in 1992 to $450 billion in 2012, adjusted for inflation. That
includes domestic transactions as well as international transactions by entities
operating and insured out of the U.S.
While that growth is impressive in absolute terms, it represents a large increase
from a small base. Citing historical figures, Marc Wagman, managing director
of Gallagher’s U.S. trade credit and political risk practice group detailed that the
U.S. volume of insured transactions grew during those 20 years from well under
one half of one percent of gross domestic product to more than 3 percent of GDP.
In contrast, the portion of insured transactions in other OECD countries ranges
from 5 percent to 8 percent of GDP.
“It is true that the percentage of participation is higher in Europe than in the
U.S. but that gap has narrowed,” said Wagman.
“Demand in this country has been quite robust, and as a result more
underwriters are coming in.”
While still a fraction of the market size in Europe and Asia, TCI has grown
robustly in the U.S.
“When I started in this business in 1996 there were maybe half a dozen
underwriters writing short-term, multi-buyer coverage,” Wagman added.
“Now we work with at least 15
carriers, and there are dozens of Lloyd’s
Within any country or region,
premiums vary according to the size of
the insureds and their business models.
“The average premium in the U.S. is
about $40,000 a year,” said Daly at EH.
“In the U.K. that would be similar. But
in a country like Poland the average
premium drops to about 10,000 euros
“This is not the insurer telling
the client with whom to do
business. For the most part,
cancellable coverage is for
smaller businesses that
don’t have their own credit
departments and rely upon the
underwriter for that credit limit
— Marc Wagman, managing director of Arthur J.
Gallagher’s U.S. trade credit and political risk practice
• The number of carriers offering
trade credit insurance in the U.S.
more than doubled in the past 20
• Premiums in trade credit
insurance are now approaching $1
billion in the U.S.
• Getting good information on
overseas trade partners is key.
Blossoms at Last