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Survey Report

Insurance Marketplace Realities 2021 Spring Update – Trade credit

Credit, Political Risk and Terrorism
N/A

April 21, 2021

With the current two-tired market, insurers have capacity for better risks.
Rate predictions
  Trend Range
Better risks: Increase (Purple triangle pointing up) Flat to +10%
Poor risks: Increase (Purple triangle pointing up) +10% to +40%

Key takeaway

The trade credit market is currently two-tiered. Insurers have opened capacity for better risks in more appealing sectors, which offers some opportunities in 2021.

COVID-19 continues to heavily impact trade credit, but overall losses have been lower than expected.

  • Underwriters remain conservative with the hardest hit sectors (aviation, hospitality) and with retail clients who were unable to shift to omni-channeling.
  • Underwriting results for the trade credit insurers were better than expected for 2020, with many insurers achieving underwriting profits. Several factors were at work:
    • Risk underwriting adjustments were made by insurers, both cancelable limit and non-cancelable limit carriers, to reduce capacity for certain sectors and for buyers with weaker risk ratings.
    • Many businesses adapted to the at-home world quickly, curtailing the expected pandemic-related losses in 2020.
    • Trade credit coverage is not prevalent in the hospitality sector, minimizing the impact of that sector’s struggles.
  • Insurers remain aggressive with both capacity and price across the board as they attempt to replace premium lost due to policies shed during the downturn. This is the case not only for desirable sectors but some risks in more loss-prone industries, i.e., automotive.

The marketplace is somewhat softer for banking and private equity financing buyers.

  • Financing programs have continued to see an uptick in demand given the current economic climate. The recent headlines about the Greensill bankruptcy, supply chain finance (SCF) and trade credit insurance losses have triggered further review by insurers to ensure their underwriters are sticking to underwriting fundamentals, particularly on SCF programs.
  • We’re not expecting any contraction in capacity or appetite from the insurers for well-structured programs. We do, however, expect a delineation as to how an insurer views SCF submissions from a bank versus non-bank SCF submissions.
  • It will be key, especially for non-bank submissions, that the structure, KYCs and other prudent underwriting measures are maintained when quoting these programs.

In the longer term, conditions are expected to improve.

  • We anticipate rate increases will begin to decelerate and eventually flatten in the second half of 2021, as many of these policies will renew for the second time since the pandemic struck.
  • In Q1 2021, some insurers took a proactive approach by reaching out to the broker community and providing a breakdown of available capacity in hopes of securing new business with a lower risk profile. This has resulted in more risk capacity for better risks. We are also seeing obligors with historically limited capacity opening for coverage.
  • Many of the cancelable limits insurers, are asking policyholders to provide key customer lists for potential reinstatement of cover that had been reduced or canceled as a result of the pandemic.
  • For now, buyers will continue to face double-digit increases if they are in sectors that are deemed unprofitable or if their customer portfolio offers a greater potential risk of default

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

Contact

Scott Ettien
Global Head of Trade Credit

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