Loading ...Demand for trade credit insurance, bought by companies in order to cover the non-payment risk from their business partners, rose significantly in October, by 50%, with companies seeking ways to protect themselves, amid an increase in the number of recent bankruptcies.
“Many companies are only now becoming aware of the necessity of a policy, as their clients are falling behind with their payments due to insolvency,” said Cristina Rusuleanu, CEO of credit insurance company Euler Hermes, in an interview with Ziarul Financiar daily.
Euler Hermes is part of German group Allianz and is the world leader in terms of trade credit insurance. The company is present on the local market through a subsidiary opened a few months ago. Till then the insurer issued credit policies through Allianz-Tiriac.
Rusuleanu said that in the wake of the financial crisis that spread to Romania as well, the clients’ examination procedures, who seeks credits, has been changed. “So far, we examined just company clients with big debts, who asked for an insurance.
Now we examine as many clients as possible, not just the big ones, because the risk of falling behind with their payments looms lage in case for medium-sized and small companies. The largest ones have the financial power to resist the crisis. This is a beneficial change, both for us and for the client”.
Usually, the insurer does not reject any company seeking a policy, but is offering a much smaller insured amount to the clients incurring higher risk of seeing their loans not repaid.
“One thing is to examine a pharmaceutical company, which will resist to the crisis because people cannot go on without their medication and another a construction company, because a clear regress is expected on the real estate market and at least till next spring things will not change to the better. Obviously, we cannot approve the same credit lines as one year ago”, said Rusuleanu.
She underscored that the highest number of applications for insurance come from the construction companies. Companies that sell goods are the most exposed to the non-payment risk from their clients because this activity involves high amounts.
As a habit, the insurer covers the entire debtors’ portfolio for its client, spreading the risk. When a company operates both on the local market and abroad it can choose to insure its clients on a single market. The same is valid for companies with an array of activities, by insuring just one of them.
With the higher number of trade credit insurance policies, the damages also are expected to rise, said Rusuleanu. “If last year we had a 20% liability rate, this year we predict it will surge to 60%. This is a very high increase caused by this crisis situation, now at surface, and things worsened in September and October”.
“The first step taken by our clients when they see a payment deferred is to notify us, but this delay not always becomes a liability because money can be recouped partially or totally. Of the total number of notifications last year, September and October concentrated half of them and bankruptcies multiplied in the past months”, underlined Rusuleanu.
The largest part of these bankruptcies took place in constructions, she said. According to her, just construction firms with own resources will survive the crisis and those dependent on the bank financing have no chance.
Euler Hermes head estimates twice as much the number of companies in its portfolio in 2009. At present, policies concluded by Euler Hermes have prices ranging between 5,000 and 100,000 euros, depending on client’s turnover and some other factors. Exposure of Euler Hermes branch on the local market is now in excess of 300 million euros.
Euler Hermes head estimates twice as much the number of companies in its portfolio in 2009. At present, policies concluded by Euler Hermes have prices ranging between 5,000 and 100,000 euros, depending on client’s turnover and some other factors. Exposure of Euler Hermes branch on the local market is now in excess of 300 million euros.
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