With
little fanfare or formality, the North American
trade-credit-insurance market is gearing up for
a banner year. Finally. "The past few years have
been brutal for the providers in this market,"
says Victor Sandy, executive director of Global
Commercial Credit, a specialty broker of all forms
of trade credit insurance.
This year, 2004, will be markedly different though,
for all the obvious reasons. "First the weak dollar
is pushing up exports," Sandy says. "Then there
is the explosion of the market in China." Also,
he adds, the poor global economy of recent years
has forced more exporters to offer open credit,
whereas secured terms were once considered the
norm.
"The exporters currently looking for coverage
fall into several categories, but the one we see
most often is the company that has been exporting
on secured terms and is now forced by competition
to offer credit," Sandy says. "Customers are balking
at putting up LCs, and as they expand into new
markets where they don’t know the risk as
well, export credit insurance is viewed as a way
to safely expand while levelling the competitive
playing field as far as offering credit terms
is concerned."
Such developments – or rather, realisations
– on the part of North American firms could
not be any more welcome to Coface, Euler Hermes
ACI and Atradius (formerly Gerling NCM), the three
main players in this market. This is not to discount
the specialised service offerings that such providers
as AIG or Zurich American offer exporters in North
America. However, Coface, Euler Hermes ACI and
Atradius inarguably represent the bulk of the
market, and thus set the stage, not to mention
pricing, terms and conditions, for buyers of these
products.
"We are anticipating that our growth rate will
be in excess of 25% this year," says Mike Ferrante,
president of Coface North America (CNA). "With
the new value of the dollar, this is a great opportunity
for Americans to look at exporting in an aggressive
manner." While the percentage might vary by a
point or two or three, other industry statistics
suggest that this market is indeed poised to grow
significantly this year. "We are anticipating
a huge demand as well," promises Joe Ketzner,
executive vice president of commercial operations
for Euler Hermes ACI.
Not surprisingly, the three big players are ramping
up operations in response. "All three companies
have cleaned up their portfolios in the past few
years," Sandy says. Certainly this is true of
Atradius. In addition to a back-office financial
realignment, the firm, once the credit risk insurer
of the struggling German insurance group Gerling,
has completely rebranded under its new ownership
by Swiss Re and Deutsche Bank. After the sale
last May, the Gerling group reduced its stake
to 3.04% from 55.9%. Swiss Re and Deutsche Bank
are now the biggest shareholders in the company,
with 47.5% and 35.32%, respectively.
The restructuring and new ownership led rating
agency Standard & Poor’s (S&P) to
affirm its A rating for counterparty credit and
insurer financial strength on its six core operating
entities. S&P had placed Gerling NCM on credit
watch in December 2002 because of reinsurance
subsidiary Gerling Global Re’s severe financial
problems. Now, though, the new ratings "reflect
the group’s strong capitalisation, strong
financial flexibility and very strong business
position," the agency said.
Coface North America can also boast of stronger
ratings, thanks to its formal establishment last
month of Coface North America Insurance Company,
a Massachusetts insurance company licensed to
issue insurance policies in 21 states. In late
2002, Coface acquired CNA’s credit-insurance
operations. Under this arrangement Coface has
been using CNA paper protected by Coface to serve
the North American market, Ferrante explains.
"By the end of 2003 we had acquired this inactive
insurance company, which has now been renamed
Coface North America Insurance Company, and starting
this quarter we will begin to issue policies under
the Coface name in the United States." End users
won’t see that much of a difference, save
one: the AA rating from Fitch Ratings, which is
higher than CNA’s rating. Coface Group is
also rated Aa3 by Moody’s.
Coface Group expects to continue its North American
expansion this year, Ferrante says. The group
plans to extend its capacity, product offerings
and servicing capabilities in Canada and Mexico.
The biggest impact that the anticipated growth
will have on operations, though, will be in sales,
says Chris Short, vice president of international
strategic accounts. "We will be adding staff to
handle the increased demand," he says. "On the
agent side, we are looking at as much as 15%."
The third player in this troika is Euler Hermes
ACI. Like Atradius, it recently has undergone
a brand and name change, albeit not as encompassing.
Last November the firm announced the change from
Euler American Credit Indemnity, or Euler Hermes ACI.
The new name is a result of Euler Hermes ACI’s
parent company, Euler, combining its activities
with its long-time business partner, Hermes. "This
new brand reflects a single name for an international
group with common goals and ambition, and will
be shared by each Euler Hermes subsidiary around
the globe," the firm said.
The rebranding and the way the global organisation
has been built will play well into Euler Hermes
ACI’s push to expand its market share in
North America, Ketzner says. Euler’s history
is well known, of course. Over the years it has
acquired principal underwriters in just about
every developed market. In the US, American Credit
Indemnity won the honours. "That has enabled us
to create an operating model in which the specific
debtor is underwritten by local underwriters.
We are able to be that much more competitive because
we have better access to the information in those
markets and have a close touch and feel to what
is going on in the respective economies," Ketzner
says.
Because of this structure, the capacity requirements
for exports into any particular market is, as
he says, "a nonevent for us". Each subsidiary
has its own reinsurance treaty, he explains. Ketzner
believes this year will be a golden opportunity
for the firm. "We will be conducting several marketing
campaigns to take full advantage of this growing
demand in North America."
One overture to customers these firms won’t
be making, however, is on price. Rates won’t
rise dramatically, or even at all, in fact; but
they certainly will not be cut in order to gain
more market share. "Pricing will stay stable this
year," Sandy predicts.
Not that buyers should abandon comparison shopping.
In fact, price is the last item Sandy advises
organisations to consider. Terms and conditions
and other contract language take precedence and
actually could prove to be far more costly than
straight rates.
His advice to buyers in this new demand-driven
world? Get a clear definition of covered losses,
especially political-risk-covered causes of loss.
Do the same with exclusions – get a list
of what is not covered. Be sure to get clear definitions
of the terms used in the quotes you receive. Remember
that credit-insurance policies are custom-tailored
policies; when comparing different quotes it is
impossible to compare apples to oranges. Make
sure you understand the reporting requirements
and premium-payment requirements; ask about sales
and past-due reporting guidelines. And don’t
be afraid to seek the help of a specialist broker
who can assist in structuring the contract.
Sandy allows this last point is a shameless plug.
However, given the exuberance in the market lately,
no one is too inclined to quibble.
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