The Coface Group’s CEO discusses credit crisis effects – transparent financial information will ease trade credit

By Mark Attley

The big three global credit insurers Euler, Coface and Atradius continue to maintain their Investment Grade ratings despite the worst financial industry results in decades. At a recent meeting of the International Credit Brokers Alliance (ICBA) in London, England, Jérôme Cazes, CEO of The Coface Group, outlined his perspective on the current credit crisis and what we can expect over the coming year. Alliance members were treated to a blunt assessment of the present situation, which, if mirrored by the other two insurers, gives an indication of the scope of the challenges confronting the industry. Ironically, M. Cazes provided some hope and assurance that there is light at the end of the tunnel–versus a torch carried by the grim reaper of capitalism.Jérôme Cazes, CEO of The Coface Group

M. Cazes highlighted the severity of the situation with statistics and comments, the most telling of which is the increase in monthly claims frequency and amount over the last 15 months. In the first nine months of 2008, average monthly claims volumes increased 50% over the volumes seen in 2007. In the last quarter of 2008 the volume had increased by 2.5 times. Unfortunately the trend continues into 2009, with monthly claims volumes increasing 3.25 times the 2007 levels. You will note that the claims frequency timing has tracked alongside the housing and banking crises in the USA. Ultimately, M. Cazes stressed that revenue and risk have to be re-balanced.

Some other interesting observations from M. Cazes included:

• A 2% drop in global GDP would have a serious impact on global credit, projections in 2008/09 for a 4 to 4.5% drop means "help!"

• Underwriting problems are normally information problems... and the price of being wrong is claims

• Coface will be implementing a transparency charter and is committed to helping its clients obtain a financial rating. Assisting companies to get rated is a key business proposition that enhances long term credibility for the industry

From a credit insurer’s perspective, M. Cazes acknowledged that the early stages of the credit crisis (what he refers to asAct I) began with the housing meltdown in the U.S. in the latter part of 2008. During the beginning ofAct II, in which global banking almost imploded, credit insurers failed to adequately communicate with customers the action they would collectively need to take to mitigate the situation.

To be fair, insurers along with the rest of the world’s financial brain trust were probably unaware of the depth and severity of the impending credit crisis.

With the massive withdrawal and reductions of buyer credit limits around the world, ICBA members are acutely aware that often these actions are being taken not necessarily because of poor credit but rather lack of buyer financial information. Regardless, insurers need to be more transparent and be committed to more transparency in the management of their risk.

By far the greatest extension of credit occurs between businesses. As specialist trade credit insurance brokers working with clients each day, the message that must be communicated is that the sharing of information with underwriters is vital. The elimination of credit limits on otherwise good credit because of lack of information is unacceptable, and our industry has a very important role to play to keep global trade moving.

(Mark Attley is an ICBA Canada broker and President of Millennium CreditRisk Management – credit and political risk insurance specialist – www.mcm.ca. ICBA is the world’s largest team of independently-owned, specialist trade credit insurance brokerages. Partners combine local service with global coordination to provide credit and political risk insurance solutions for multinational companies.)