Trade credit and surety insurance

Trade credit insurance covers companies against the risk of non-payment of their commercial receivables, whether resulting from buyer insolvency (judicial failure) or prolonged payment delay (de facto default). The credit insurer continuously analyzes the solvency of buyers in the insured's portfolio and grants guaranteed credit limits. In the event of a loss, it compensates the insured at the contractual coverage rate (generally 85 to 95 percent of the unpaid receivable) and pursues recourse against the defaulting debtor. The global market is dominated by three players: Coface, Atradius and Allianz Trade (formerly Euler Hermes). Concentration risk is a central issue: if an insured is overly dependent on a small number of large buyers, the failure of one may threaten its own solvency despite the cover. Trade credit insurance is closely linked to economic cycles, with claims increasing sharply during recessions. Surety is a distinct but related product: a performance bond is a guarantee issued by an insurer or bank in favor of a project owner (contracting authority or public buyer), guaranteeing the contract performance of the guaranteed company. In the event of the company's failure, the insurer steps in or compensates the beneficiary.

An electronics component manufacturer insures 35 million euros of receivables from its 150 European customers. Its largest customer (8 million euros outstanding) is placed in judicial recovery. The credit insurer, which had reduced the guaranteed limit from 8 to 5 million three months earlier after detecting financial deterioration signals, compensates the manufacturer for 4.25 million euros (85 percent of 5 million).

assurance crédit, credit insurance, cautionnement, surety, Coface, Atradius, Euler Hermes