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Carrier financial results and market update
Loss Ratio evolution
Combined Ratio evolution
Key carrier results
- Reported revenues from the largest trade credit carriers grew by 10-15 percent in Q1 2023 versus the same period in 2022. This reflects both the tailwinds provided by higher trade volumes and client activity given the inflationary environment, and high levels of client retention during the important 1st January renewal period.
- We anticipate that growth will decelerate during 2023 as i) demand slows in the global economy (albeit with regional differences), and ii) inflation levelling off (although remaining above recent trends).
- The claims environment is slowly but steadily normalizing to the pre-pandemic levels of 2019 with carriers reporting gross Loss Ratios between 40-50 percent for Q1 2023 - an increase of up to a third over the same period in 2022.
- Combined Ratios also returning towards levels not seen since Q3 2020 and the more historic pre-pandemic norm levels of between 70 and 80 percent.
- Business insolvencies are predicted to exceed pre-pandemic levels in many countries during 2023, because of i) tighter credit conditions brought about by higher interest rates and ii) economic growth slowing down (especially in the construction, retail, and transportation sectors).
- The frequency of claims has continued to intensify over the past 12-months. Large severity losses which, by their nature are difficult to predict, are also increasing with some notable cases affecting the market (e.g. Lojas Americanas insolvency in Brazil during Q1 2023).
- The premium pricing environment remains somewhat stable with rate changes during Q1 2023 in the low single digits below the same period last year. We anticipate that this pricing trend will continue in the short term in the absence of any unforeseen events.
- Whilst heightened geo-political tensions create potential for volatility, restrictive global trade measures continue to rise at a much faster rate than liberalizing reforms, which highlights the uncertainty of the global trading environment. Aon issued its latest Political Risk Newsletter in June 2023.
Coverage trends
- Insurers’ appetite and capacity (Total Potential Exposure) remains at a high level but appears to have levelled off during Q1 2023. We can attribute this to the expiry of Q4 2022 temporary credit limits running off during early 2023 as well as the depreciation of many currencies versus the EUR aggregate reporting currency of the capacity.
- Carriers continue to report high levels of acceptance at approximately 75 percent and remain very supportive globally with some selectivity e.g. watching the retail and construction sectors closely, which are seen as leading indicators for the overall economy.
- Notwithstanding the inflationary environment, weak economic growth may in turn lead to aggregate, which in turn may lead to aggregate capacity requirements diminishing. Carriers expect clients to carry headroom in insured credit limits but when economic conditions deteriorate, carriers often look to reduce these to clients’ actual trading levels in order to manage real exposures.
- Carriers will no doubt see the economic slowdown affect their overall appetite and approach. Tightening liquidity will adversely affect those companies and sectors exposed to weaker margins and cash reserves, leading to potential domino and ripple effects to companies in the supply chain.
- We expect carriers to conduct more thorough risk reviews and insist on having more up to date financial data to maintain or increase support in some cases.
Insurer results are based on 2019-23 company financial reporting, available industry information and Aon data.
Limit Capacity evolution
Trade Credit Insurance – Insured Exposure¹
Trade Credit Insurance – Premium, Claims, and Claims Ratio¹
¹Source: ICISA-Press-Release-June-2023-1.pdf ²Source: https://www.berneunion.org/DataReports
ICISA and Berne Union Data
The International Credit Insurance & Surety Association (ICISA) members account for over 95 percent of the world’s private market trade credit insurance business. For 2022 ICISA¹ reported:
- Insured exposure increased by 20 percent to €3.2 trillion (€2.7 trillion)
- Increased premium written of 13 percent €7.8 billion (€6.9 billion)
- Claims paid increased by 66 percent to €2.5 billion (€1.5 billion)
- Claims ratio increased to 30 percent (21 percent)
The Berne Union² is an international not-for-profit association representing the global export credit and investment insurance industry. Berne Union Members include government-backed export credit agencies, private credit and political risk insurers and multilateral institutions from across the globe who provide direct and indirect support for international trade and cross-border investments, through insurance, guarantees and various direct financing instruments.
- Collectively, members provide payment risk protection for approximately 14 percent of world annual cross-border trade in goods and services, amounting to $2.6 trillion in 2021.
- Short term export credit growth was mainly driven by public providers who saw their turnover covered rise by 20 percent in 2021, whereas private insurers’ cover rose by 4 percent YoY meaning they have just surpassed their 2019 volumes.
- Short term export credit claims continued to fall in 2021 (-19 percent) with just $2.5 billion indemnified and resulting in the lowest short-term claims ratio recorded in more than 10 years. This follows the overall trend in global insolvencies and corporate bond defaults, despite some government support measurers being phased out during 2021.