German buyers call on credit insurers to provide capacity
03-03-2009
Richard Miller
DVS, insurers, say state intervention not necessary
[HAMBURG, Germany]—The German commercial insurance buyers' association says that while it would welcome any move by the government to provide additional credit insurance capacity, it would prefer that insurers address the tightening conditions on their own.
But Germany's largest credit insurer, Hamburg-based Euler Hermes Kreditversicherungs A.G., does not believe state support to boost capacity—such as that introduced in France in December—is currently needed in Germany, said Ulrich Nöthel, the insurer's risk director.
French solution
In France, the government enabled the Caisse Centrale de Réassurance, the state-backed reinsurer, to step in and offer capacity where credit insurers had reduced their limits on existing business. (BIE, Dec. 15, page 1).
Discussions between the credit insurers and Germany's Federal Ministry of Economics and Technology have taken place for about two months, but there has been no decision yet on support, said Mr. Nöthel, who is not directly involved in the talks.
"The situation of credit insurers is not comparable to the situation of banks. Therefore, such support is not necessary," said Mr. Nöthel. He noted that overall covered amounts have increased this year, compared with last year.
"Certainly the government is interested in talks with all credit insurers and there might come a point in time when politicians will think it is necessary to find a solution from their point of view," Mr. Nöthel said.
Need questioned
"We are still in discussions, which are very constructive, but again we do not see a need so far."
But from the perspective of German buyers, the capacity offered by private credit insurers is "insufficient" to meet the needs of certain industries hit hardest by economic and financial crisis, said Günter Schlicht, managing director of the Deutscher Versiche- rungs-Schutzverbande.V.- the Bonn-based German commercial insurance buyers association.
For example, German automotive suppliers have seen reductions or cancellations of cover for trade receivables with certain clients. Textile, paper and logistics industries are also being scrutinized by credit insurers, he said.
"In principle, it would certainly be welcomed if government were to be ready to contribute to adequate insurance cover where the private credit insurers are stepping out, but, of course, one would have to have a detailed look at any concept which would emerge from discussions," Mr. Schlicht said. "We would prefer, though, if the insurers were to act in a less restrictive manner."
Across Europe, concern over lack of coverage and rate hikes for credit insurance have prompted business organizations and risk managers to call for alternative solutions.
U.K. lobby effort
As well as moves by the French to enable the CCR to offer top-up cover, in the United Kingdom, the Confederation of British Industry and the opposition Conservative Party, have called for the U.K. government to step in as an insurer of last resort for trade credit insurance, on a temporary basis.
A spokesman for the German insurance association, Gesamtverband der Deutschen Versicherungswirtschaft e.V. in Berlin, which is a party to the talks with the Bundesministerium für Wirtschaft und Technologie, confirmed that discussions with the government are ongoing. But he reiterated that credit insurers are in a "comfortable" position with respect to liquidity, and state financial support is not necessary. A ministry spokesman could be not reached for comment.
Jörg Mielke, head of credit and political risks practice at Marsh GmbH in Munich, said the German government is considering a so-called top-up solution, in which corporate buyers could buy additional insurance capacity from the state above the limits provided by private insurers—using the French model as an example.
"The policyholders are looking for more capacity and the problem is we do not have sufficient solutions in the market to [obtain] this capacity," said Mr. Mielke, "and that is why the state could help."
But he noted that the private market could address the capacity issue by being more flexible with underwriting or through developing both capacity and risk-sharing models such as co-insurance arrangements. This would minimize the drawback of top-up solutions which always require a limit provided by the primary insurer, he added.
In addition to Euler Hermes—the largest credit insurer with about a 35% share of the global market—the other credit insurers that operate in Germany include Amsterdam-based Atradius N.V., Paris-based Coface S.A., Switzerland-based Zurich Financial Services Group, and Wiesbaden-based R+V Versicherung A.G.
Besides tightening capacity, premiums for credit insurance in Germany have risen on average by 10% to 20%, Mr. Mielke said. For seriously affected sectors such as the automotive industry, premiums are up 50% in combination with higher deductibles, he added.
Credit insurers as a whole have become more reluctant to grant cover in certain countries affected by the financial crisis, namely emerging markets such as Russia, Turkey and Romania, according to Euler Hermes' Mr. Nöthel. Commenting on the overall market, Mr. Nöthel said he would be surprised if the cover by all credit insurers worldwide had decreased by more than 5%.
Case by case
In the case of Euler Hermes, part of Munich-based Allianz S.E., the decision to withdraw capacity is always made on the basis of the single risk, not for countries or sectors in general.
"We are not canceling [business] on a massive scale," he said. "We are just going through our portfolio and saying we do not want to cover the borderline cases as we did last year."
For a single insurance policy, the reduction in coverage may amount to 8% of the portfolio, he added. Even under normal conditions, the acceptance ratio is not 100%, he noted, and is influenced by the sector and country.
As some industries have been hit harder by the economic crisis, Mr. Nöthel said credit insurers have reduced capacity to automobile manufacturers and suppliers. But, he believes restructuring of Germany's automotive companies have put them in a better position to manage the downturn.
"The message to corporations is: talk to us. We will always try to find solutions for our policyholders, because our business is to insure, not to cancel," Mr. Nöthel said.
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