Trade credit market to polarise

Insureds will experience an underwriter flight-to-quality, and uncertainty remains in the market over ongoing claims.

A series of high-profile commodity-trade fraud cases, trading company collapses and supply chain finance controversy, coupled with a scaling back of working capital support from trade finance providers has resulted in a more considered approach to credit insurance over the past 12-18 months. This cautiousness has intensified against a backdrop of economic uncertainty and supply chain disruption.

In the year ahead, we will see a polarisation of the trade credit insurance market as some underwriters continue to withdraw from writing trade-related risks – previously the gold standard of the market – instead preferring corporate loans and non trade-related payment default risks.

For others, this represents opportunity. Those underwriters that continue to write commodity business will exhibit a ‘flight-to-quality’ approach, favouring risks from large trading houses, with whom they have long-standing relationships or those that have backing from major banks or ECAs.

The trade credit market will be watching with interest to see how various well-known defaults and claims are resolved in the coming year, with there being potential market-wide ramifications in how these matters unfold – including some key questions revolving around the availability of cover for synthetic trade, how trade credit insurance should respond to fraud, and the role financiers are expected to play in verifying funded transactions.

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