2010年-世界发展银行全球_Trade_Credit_Insurance_33页_738kb

Trade Credit Insurance Summary

Core Content

Trade Credit Insurance (TCI) is a critical risk management tool that protects suppliers against the financial risks associated with non-payment by buyers. It is offered by private insurance companies and governmental export credit agencies, and is primarily used to cover losses from commercial risks such as insolvency, protracted default, and bankruptcy, as well as political risks like currency inconvertibility, confiscation, and nationalization.

Main Points

• Definition: TCI is an insurance policy that covers the risk of non-payment of trade debts. It usually covers a portfolio of buyers and pays a percentage of unpaid invoices, typically up to 85-90% of the loss.
• Purpose: It allows suppliers to extend credit to their buyers without the risk of non-payment, thereby increasing sales and business growth.
• Market Structure: The global TCI market is dominated by a few major players such as Atradius, Coface, and Euler Hermes, which collectively account for over 85% of the market.
• Coverage Scope: TCI typically covers short-term risks (up to 365 days), while medium-term policies (up to 5 years) are provided by state-owned export credit agencies.
• Premiums: Premiums are calculated as a percentage of sales or outstanding receivables and are usually paid monthly. Additional premiums may apply for political risk coverage.
• Subrogation: Insurers have the right to recover losses directly from the buyer, which helps in managing and containing losses.
• Credit Limits: Insurers establish credit limits for each buyer, and discretionary limits may be set to allow flexibility in business transactions.
• Benefits: TCI offers several advantages including risk transfer, access to professional credit management, prevention of liquidity issues, reduction of earnings volatility, and enhanced access to financing and credit terms.

Key Information

• Benefits for Suppliers:

  • Transfers payment risk to insurers.
  • Provides access to credit risk expertise.
  • Prevents liquidity shortages and insolvency.
  • Reduces earnings volatility.
  • Facilitates receivables financing.
  • Enables credit extension to customers.
  • Improves relationships with lenders.

• Benefits for Lenders:

  • Allows lenders to use receivables as collateral.
  • Enhances the security of loans based on trade receivables.
  • Increases the advance rate against receivables, thus providing more working capital to suppliers.

• Limitations:

  • TCI does not replace credit management practices but complements them.
  • Not all risks are covered; typically up to 85-90% of the loss.
  • Suppliers must manage their credit risk effectively before purchasing TCI.

Products and Alternatives

• Main Products:

  • Whole turnover policies (covering all receivables).
  • Specific account policies (covering certain named accounts).
  • Single account policies (covering one buyer).
  • Catastrophic policies (with high deductibles).

• Alternatives:

  • Letters of Credit: A common alternative used in international trade.
  • Factoring: Involves selling receivables to a financial institution for immediate payment.
  • Asset-backed Commercial Paper: Used by large suppliers to sell receivables at a discount to capital market investors.

Market Trends

• Global Growth: The TCI market has grown significantly, with global credit insurance premiums reaching around €5.3 billion in 2008, covering sales of about €2.6 trillion.
• Post-Crisis Recovery: After the 2007-2009 financial crisis, the market rebounded quickly, taking over some business from banks.
• Specialization: TCI is a highly specialized area of non-life insurance, requiring advanced credit risk underwriting and information systems.

Conclusion

Trade Credit Insurance plays a vital role in both domestic and international trade by mitigating the risks associated with non-payment. It supports business growth, improves financial stability, and enhances access to credit and financing. However, it is not a substitute for sound credit management practices and should be used in conjunction with them. The insurance market continues to evolve, with increasing availability and specialization, making it an essential tool for businesses in managing credit risk.