S-Tech news

Atradius to widen trade credit cover

10/11/2009

The company said small and medium sized enterprises would benefit the most and that the construction and engineering sectors were likely to see the biggest improvement in the amount of cover available.

Trade credit insurers were thrown into the spotlight when the economy ground to a halt in the final quarter of 2008 after companies blamed a widespread reduction in insurance cover for the seizing up of their supply chains.

Trade credit insurance pays out if a company goes bust before it pays for goods or services. Retailers were especially hard hit, and Woolworths said the removal of credit insurance and the resulting problems with its supply chain helped push it into administration.

Shaun Purrington, Atradius’s UK and Ireland director, said retail was one of the few sectors that would not benefit from his company’s increased risk appetite. “We see a difficult outlook for retail in the fourth quarter and the first quarter of next year,” he said. “We also remain concerned about pre-packs [a form of quick bankruptcy rehabilitation that can hurt unsecured creditors].”

Mr Purrington said the increase in capacity had been driven by more transparency on the part of companies wanting insurance rather than a big improvement in the economic outlook. “This is not about the economy improving,” he said. “It’s about better information sharing between insurers and companies, which has helped us to better identify the risks we feel comfortable with.”

Xavier Denecker, managing director for the UK and Ireland at rival Coface, said that while the period of economic freefall had passed and risks were more visible, he still expected only a slow, L-shaped recovery.

“We are now prepared to consider risks that we would have avoided in the nine previous months, but we will still be cautious because we think another wave of insolvencies could materialise,” he said.

The majority of Atradius’s extra capacity would be offered to companies that already have some cover, while less than 10 per cent would go to new clients, Mr Purrington said.

The rest would be available to companies who had seen cover withdrawn entirely in the downturn. The increase in cover could help facilitate up to £1bn in extra trade, it added.

By Paul J Davies

Published: November 4 2009