Carrier financial results & credit insurance market update

Loss Ratio evolution

Combined Ratio evolution

Insurer results are based on 2019-21 company financial reporting, available industry information and Aon data.

* Cumulative

Key carrier results

  • Lower levels of business insolvency reflect the varying levels and types of support provided to businesses by governments in most advanced economies during the 2020/21 pandemic period which has had the effect of supporting weaker trade sectors and buyers who might otherwise have not survived the economic downturn. With the economic recovery now underway the tapering of this support and the recommencement of formal business insolvency procedures will prompt a return to the more normal business cycle that will happen in countries and trade sectors at different speeds and times.
  • As a result of the artificial economic environment created over the past 18-months, credit insurers have experienced extremely low levels of loss. Carrier financial reporting at end Q3 2021 reported Loss and Combined ratios at Group levels that have continued at a historic low level and, in the absence of significant large loss incidents or high-frequency claims, these loss ratios are about 50% below otherwise anticipated levels.
  • Even though we do expect a future “normalisation” of loss ratios as insolvencies inevitably return, the impact and timing of these also remain so uncertain that it is unlikely to impact carrier results until 2022 at the earliest. Whilst these more favourable underwriting conditions exist, credit insurers have continued to adopt a much more pragmatic position on both their risk and commercial strategies, whilst seeking high levels of client retention and profitable growth. This is also balanced by recognition that the pricing environment needs to better match the increasing risks as momentum in the economic recovery decelerates and insolvencies arise as “normalisation” occurs.

Coverage trends

  • Insurers’ appetite and capacity (Total Potential Exposure) has once again continued to increase quarter-on-quarter, rising to meet demand of restocking as the economic recovery takes hold, reflecting higher commodity pricing and inflationary pressure effects. Insurer capacity is on course to return to pre-pandemic levels in the aggregate by the end of 2021 with a rebound seen in all geographic regions and notably in trade sectors of electronics, chemicals, metals and consumer durables.
  • There was continuity and stability in credit limit coverage following the expiry of government reinsurance schemes on 30 June 2021. These schemes were originally designed as part of a broad package of overlapping government measures to enable insurance coverage for adversely affected trade sectors (as opposed to protecting the credit insurers themselves).
  • Credit Insurers have already had ample opportunity during the previous 18-months to take any remedial risk actions on Countries/Sectors/Buyers prior to the government reinsurance schemes’ expiry and in preparation for a return to more normal underwriting conditions related to the economic cycle.
  • This cautious upward and increased expansion trend of coverage is set to continue in the short term to support rapid restocking, pent up demand, and momentum in the economic recovery.
  • At the same time, the market is innovating to provide capacity and solutions related to some more complex and larger risk exposures, adoption of new technologies to improve process and decision making, and also in the face of ESG themes as the industry seeks to support the transition to net-zero.

Limit Capacity evolution

Insurer results are based on 2019-21 company financial reporting, available industry information and Aon data.

Reinsurance

  • The reinsurance market continues in the main to suffer from under-pricing on many lines of business. Or rather that is the view of reinsurers and investors in reinsurance companies. Comments to this effect were prevalent in the weeks leading up to and during the “Monte Carlo” reinsurance convention. The increased incidence of natural catastrophes during Q3 of 2021, has generated significant losses for both insurers and reinsurers, promoting this view and adding pressure to the situation. Although the impact of Covid in overall terms has not been as great as many feared at the beginning of the pandemic, estimates suggest that the cost could be towards or even above $50bn, and therefore it remains a very material loss event.
  • Ironically (given the sentiments towards the sector in mid-2020), credit business has been one of the better performing lines of business for reinsurers, given the lower level of claims. Reinsurers are benefitting from improved commercial terms in 2021, a result of the harder market and what was seen as the heightened risk environment. With the positive results, the majority of reinsurance Buyers are looking to improve commercial terms for 2022, but it remains to be seen how reinsurers will react. Although there are clear reasons to redress the balance, historic precedents have shown giving back improvements in the following year is very unusual, and reinsurers had in the years running up to 2020 been discussing the need to improve margins generally.
  • There is no evidence of any reduction of capacity for credit business, and the market continues to want to support programmes where there are clear positive result patterns and low volatility. For capacity, the market remains heavily dependent upon half a dozen key reinsurers, however, and therefore competition within reinsurers is not as strong as in some other business lines.
  • It remains uncertain how reinsurers will react in the 2022 renewal season. At this stage, concessions may be forthcoming, but whether the market will return to the same margins and commercial terms existing in 2020 is not clear. The position of the major reinsurers will become clearer as renewal discussions start to crystallise.

Trade Credit Insurance – Insured Exposure¹

Trade Credit Insurance – Premium, Claims, and Claims Ratio¹

¹Source: https://www.icisa.org/industries/#trade-credit-insurance ²Source: https://www.berneunion.org/DataReports

ICISA and Berne Union Data

The International Credit Insurance & Surety Association (ICISA) current members account for over 95% of the world’s private market trade credit insurance business. For 2020 ICISA¹ reported:

  • Insured exposure decreased slightly to €2.4 trillion.
  • Premium written of €6.3 billion.
  • Claims ratio increased to 60% (48%) and significantly above average for the past 10 years to levels not seen since the Global Financial Crisis.

The Berne Union² is an international association of the global export credit and investment insurance industry consisting of 80 members from Export Credit Agencies (ECAs), private insurers and multilateral members from 73 countries. For 2020 their total short-term export credit trade turnover covered was USD 2.26trillion, with increases mainly due to increased commitments from ECAs whose remit was expanded during the pandemic. According to 2020 Berne Union data, last year did in fact end up being a year of high claims paid – with the total rising around 20%. However, that 20% rise stems from claims paid relating to medium/long-term (MLT) export credit and included many claims not directly related to COVID-19 but paid in 2020 incidentally. Berne Union’s members paid out just over US$1 billion in claims for short-term insurance policies in the first six months of 2021, a 38% drop compared to the previous half-year period and "the lowest short term claims/commitments ratio for any period in Berne Union records".