By CYRIL TUOHY, managing editor of Risk & Insurance®
Managing Editor Cyril Tuohy talked with Brett Halsey, president of Atradius Credit Insurance Inc. Below is part of the transcript of their conversation.
Have the trade-credit players had to pare back in the wake of the financial crisis?
Yes, that's true. We did have to pare back, and a large part of that was due to the level of exposure we had in certain sectors and countries that were being hit hardest by the crisis. With the soft market from 2003 to 2007, we had ramped up our exposure and through the course of the crises needed to take corrective action, one that was also commensurate with increasing our premium rates as well. As a result, our customer retention rates were adversely impacted, but we have been able to right size our portfolio and client base.
During the crisis, we saw an increase in claims activity even with the risk-mitigating elements in place, which made it difficult in 2008 and 2009 to write a significant amount of new business.
One of the things we were conscious of at Atradius was the pricing mechanics in 2003 to 2007, and looking back it really was too light across the whole credit insurance market. We were not facilitating higher premium rates in the benign credit market, which was a consequence of heavy competition within the credit insurance industry and with other financial institutions.
Atradius has traditionally been prudent in our marketing and new business acquisition plans. We want to be selective in our approach and are fairly cautious in a number of sectors, like auto, textile, real estate and the construction industries. We are, however, aggressive in the energy, food and pharmaceutical sectors.
Atradius is more aligned with Chartis, FCIA, QBE and Zurich, insomuch that we are all heavily reliant on specialist and non-specialist brokers. Euler and Coface have more of a direct agency base, and so they operate under a different model.
I'm convinced that credit insurance is on the cusp of mainstream acceptance in the United States. In Europe, credit insurance has approximately 40 percent market penetration because there is so much-cross border trade there and greater transparency in financial disclosure.
In the United States, companies use risk mitigation to take risk off the balance sheet, and that's something we want to work with and partner with clients about. It's not about us swooping into our clients' offices and saving the day and outsourcing their credit team. It is truly a partnership with our policyholders.
Credit insurance is a tool for risk mitigation and catastrophic loss, particularly with the exports to Latin America. Financial disclosure is difficult in this market based on the private nature of organizations, but in Europe, with the VAT numbers widely known, it's easier to provide optics and credit limits.
Many forms of risk hedging products that people use are expensive and administrative. Credit insurance is one of the easiest and more inexpensive products to use to secure your receivable base, so there is really an opportunity for us. And don't forget that credit insurance penetration in the United States is about 4 percent, so there is a lot of room for growth.
I think there's an opportunity to capture a couple of market-share points in the wake of this financial crisis issue, and, of course, there's some truth to the fact that we took some hits to our credibility. There's a lot of sophistication in terms of hedging tools that chief financial officers and credit managers use that make us relevant so, again, we have opportunity in the market.
Industry growth was at between 12 percent to 15 percent annually before the financial crisis.
Euler, Atradius and Coface are the three largest credit insurers in the world in that order.
May 1, 2010
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