Trade credit and surety insurance

Trade credit insurance covers companies against non-payment of their commercial receivables, whether from the buyer's formal insolvency or from protracted default (nonpayment without proceedings). The credit insurer monitors the solvency of the buyers in the insured's portfolio on an ongoing basis and sets a credit limit on each buyer. When a loss occurs, it pays the insured percentage set in the policy (generally 85 to 95 percent of the unpaid receivable) and pursues recourse against the defaulting debtor. Three players dominate the global market: Coface, Atradius and Allianz Trade (formerly Euler Hermes). Concentration is the classic weak spot: an insured that relies too heavily on a few large buyers can see its own solvency threatened when one of them fails, despite the cover. The line tracks the economic cycle, and claims rise sharply in recessions. Surety is a separate 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): it guarantees that the bonded company will perform its contract. If the company fails, the insurer steps in or pays the beneficiary.

• Council Directive 87/343/EEC of 22 June 1987 (credit insurance and suretyship insurance)