Excerpt from ICBA Advantage Issue 3 - Spring 2009

Euler Hermes is the world’s largest credit insurance provider and industry leader, present in over 50 countries with 36% share of the world credit insurance market. Euler Hermes diagnoses the financial situation of more than 40 million companies. Its analysis provides necessary information for choosing sound trading partners and efficiently managing debtor risk. In 2008, Euler Hermes protected business transactions totalling €800 billion.

Question: As an antidote to shrinking International trade, Arvind Panagariya, Professor of Economics at the School of International and Public Affairs at Columbia University, in a recent Forbes.com article, suggested “the Group of Twenty (G-20) nations must assign a high priority to restoring the provision of trade credit.” How does credit insurance aid economic recovery and increase trade?

Michel Mollard, Member of the Board of Management, Euler Hermes, Euler Hermes Sfac CEO
Michel Mollard: In the same article Arvind Panagariya explained, “With the exporter and importer located in two different countries, information asymmetries and the resulting distrust are deeper.” That’s why our first aim is to inform and protect companies against business risks. For many businesses, the present crisis has resulted in liquidity problems and difficulties in accessing credit. The consequence is an ease in late payments, default rates and, ultimately, business failures. The latter went up 25% in 2008, will continue to rise in 2009 and will create more instability for businesses. Protecting trade receivables is crucial for all businesses. Overdue accounts can have a direct impact on margin and eventually lead to insolvencies. One quarter of business collapses are due to non-payment by a customer. With trade receivables insured and cash flows protected, companies can concentrate more efficiently on their business activity.

Question: A recent post at the ICBA blog states, “It’s interesting to note that if premium rate levels today were at the same level as 2000, i.e. almost double, claims ratios today would be manageable.” Does raising premiums contribute to helping companies grow and increasing global GDP?

Michel Mollard: Over the past ten years, our prices have fallen due to competitive pressure to gain market shares. During the economic upturn Euler Hermes managed to lower its rates and to increase risk coverage altogether. But today, as a mechanical consequence to the economic deterioration, the risk of insolvencies is rising and we have to cost out the real price for that risk. Nevertheless, we also need to take into account how our policyholders perceive the risk’s fair and acceptable price: elasticity is to be measured. Currently, would they be disposed to pay triple to get better coverage? Certainly not, and that is the reason why credit insurance concentrates on “prevention” of risks.

Something else to ponder: is more coverage in this crisis and slump period really needed? Due to the strong demand contraction, we don’t notice too much inter-company credit tension.

Question: Euler Hermes is the trade credit insurance industry leader, serving 40 million businesses worldwide. Please comment on how ICBA brokers can work together to best leverage Euler Hermes’ size, scale and success?

Michel Mollard: There are many synergies to explore. Local strengths (unique assessment for each market) and a global view (a consolidated IT system, account managers, the established Service Level Agreement) are key success factors that serve multinational companies. ICBA and Euler Hermes are both global and local players – thus the natural synergy between ICBA brokers and our new business unit, Euler Hermes World Agency.

We have to work more closely together and realize the potential of each market with all the brokers from the ICBA network. ICBA local customer portfolios represent a strong competitive asset. Euler Hermes is pleased to participate in ICBA development and successes.

(Excerpt from ICBA Advantage - The newsletter for trade credit insurance solutions - Issue 3 - Spring 2009. © 2009 International Credit Brokers Alliance (ICBA) www.icba-online.com. Company and product names are trademarks of their respective companies.)