Credit insurance market overview 16 th February Presentation by: Sarah Winstone 2017 Director, Trade Credit
Introduction What is credit insurance • Credit insurance is a Business to Business insurance product offering cover against the risk of not being paid for goods or services provided. If your customer does not pay, the loss is covered by the insurance policy. • The protection gives businesses the confidence to extend credit to new customers and also improves access to funding, from banks and financial institutions often at enhanced and competitive rates. • The raison d'être for trade credit insurance is to protect businesses from the risks of trading; and with ever changing world economics, global volatility has become an inherent risk. • Credit Insurance in the UK was set up by the government after WW1 to facilitate trade, and at that time, specifically export trade. More than 90 years on, that legacy continues and the increased interest in opportunities both overseas and at home highlights the value and benefits of robust credit management. ajginternational.com
Overview of credit insurance • Size of the market: GBP 300 billion turnover insured. • Number of underwriters: 22 insurers within the company market and Lloyds market. • Capacity: The insured exposure figure for 2015 was GBP 2 trillion, an increase of more than 4% compared to 2014, and almost 35% higher than pre-crisis levels of 2007/8. • Loss ratio: currently 50%+ of paid premium. • Credit insurance is more than a simple protection against loss; policyholders benefit from access to detailed information on all aspects of trade and receive guidance from industry experts. Trade credit insurance protects, supports and enables business growth with almost 12,000 policies taken out by UK registered companies in 2015. ajginternational.com
Gross written premium GROSS WRITTEN PREMIUM (£m) 400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 ajginternational.com
Gross written premium by market segment Share of Gross Written Premium by Market Segment (%) 9% Domestic Export 23% Non- UK 68% ajginternational.com
Credit insurance market size NUMBER OF POLICIES 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 ajginternational.com
Market segmentation Share of Number of Policies by Market Segment (%) 4% 22% Domestic Export Non- UK 74% ajginternational.com
Claims data NUMBER OF CLAIMS 30,000 25,000 20,000 15,000 10,000 5,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 ajginternational.com
Claims data by customer Share of Number of Claims by Customer Size by Insured Turnover (%) 11% 22% 9% £0m - £3m £3.1m - £5m £5.1m - £10m 18% 24% £10.1m - £50m £50.1m - £100m >£100m 16% ajginternational.com
Developments over last five years • More insurers enter the market • More capacity • Increasing trends of credit insurance backing trade finance • Non cancellable buyer credit limits / delayed effect • Syndication more common • Layering / imaginative structuring • Underwriter information – country / sector / economic analysis • Modelling / scoring portfolios • Regulatory environment • Regular remarketing / tendering • Prices driven downwards ajginternational.com
Why companies use credit insurance • Compete for business • Respond swiftly to opportunities • Analyse financial and market stability • On going risk monitoring • Domino effect – customers customer, supply chain impact etc • Focus on internal resources while out-sourcing • Competitive advantage • Benefit through higher credit limit and / or longer terms of payment • Recent market trends show higher profile insolvencies, unusual because of their size, speed and circumstance ajginternational.com
Access to offering and service Underwriter and broker structuring • Central decision making verses local • Policy underwriting – central or local • Local policy servicing – central or local – underwriter and broker • Efficiencies and control verses company politics ajginternational.com
Market overview • Pharmaceutical sector projected sales for 2017 USD 812 billion • Account for approximately 12% client base of the credit insured market • An industry with seven years of continued growth ajginternational.com
Market comment Strengths • Structural rise in demand boosted by growing middle classes in emerging markets and aging population • Drugs and medical aids not as sensitive to economic highs and lows as other products • High profitability within the industry providing cash to continue to cope with high costs of research and development Weaknesses • Public health insurance systems bring pressure to bear on new drug prices • Strict healthcare laws and regulations • Industry’s reputation damage created by issues such as 5000% price rise on Daraprim drug in US last year • Patent expiration enables competition to offer products at lower price • Stagnation of sale of non-prescription drugs ajginternational.com
2017 onwards • Trade credit insurance is no longer viewed simply as a safety net to pay out claims in the event of non-payment. The core element that customers are now buying is the access to expertise, to information and to the accumulated experience about trading risks around the world. • Made in Britain is an attractive label overseas and the devaluation of the pound currently enables UK exporters to compete financially with other suppliers. • As the global trade environment continues to be characterised by volatility, the demand for insurer expertise, experience and as an information source will grow more and more and will underpin successful trade relationships. • Consider using credit insurance as a business tool to support trade and bank funding, not just an insurance product. ajginternational.com
Thank you Presentation by: Sarah Winstone Contact details Tel: 020 7204 6148 Email: sarah_winstone@ajg.com
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