03 October 2019

Commercial Risk Europe: Trade credit insurers reducing exposure and raising rates over no-deal Brexit fears

Brexit is a big motivator for interest in credit insurance, according to Ian Watts, trade credit practice leader for Marsh JLT Specialty in the UK and Ireland. “Predictions of a large jump in bankruptcies – both in the UK and in markets contaminated by Brexit, such as Ireland, Netherlands and Belgium – mean that more firms are exploring risk transfer,” he said.

Mr Watts added that Brexit is driving increased credit risk across all sectors. “We’re having more discussions with new clients around how trade credit insurance can defend them against the expected rise in insolvencies. The biggest effect may be seen in the food and agriculture, transport and automotive, and retail sectors, which are considered by trade credit insurers the most susceptible to Brexit supply chain risk,” he explained.

Faced with increased claims and Brexit uncertainty, trade credit insurers are taking steps to manage their exposures, with consequences for rates, available limits and capacity. In March, the Association of British Insurers (ABI) reported that trade credit insurance claims for the first quarter in the UK had reached a ten-year high.

“Rates have increased slightly. Some firms are accepting increases on pre-existing deals to secure a longer-term position. Insurers have taken action to reduce their exposure to UK corporates – and continue to do so, explicitly citing Brexit and concerns over the UK economy generally as the rationale,” said Mr Watts.

Although trade credit insurers are continuing to support clients in the UK, they are likely to require additional information, explained Trevor Williams, head of credit and surety in Europe at QBE.

Brexit, in particular the prospect of the UK crashing out on 31 October without a deal, is leading to increased credit risk at a time when the global economy is beginning to slow. A bad Brexit outcome is expected to increase the rate of business failures in the UK and among key trading partners like Ireland, while uncertainty and Brexit stockpiling is already putting supply chains under strain.

Brexit uncertainty is hanging over the UK economy, where late payments and claims received are already increasing, noted Mr Williams.

Uncertainty is affecting decision-making and investment, while some EU workers in the UK are returning home, leaving staff shortages in a number of food and hospitality sectors. There are also big concerns across the UK agricultural sector, where uncertainties over Brexit could hit market access and increase tariffs and protectionism, said Mr Williams.

The UK is already witnessing a rising insolvency rate. The number of UK companies issuing warnings over Brexit has more than doubled in the past six months, according to analysis of reports and accounts by Company Watch.

Full article on Commercial Risk (subscription required)

© Commercial Risk Europe