12.43 PM Wednesday, 28 February 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 05:26 06:39 12:34 15:52 18:24 19:37
28 February 2024

Global financial crisis creates more room for credit insurance companies


By VM Sathish
Companies hit by the effects of the global financial crisis are increasingly looking towards credit insurance as a safeguard against payment defaults and credit risks. Euler Hermes, the worldwide leader in credit insurance and one of the top players in bonding, guarantees and collection, began operating in the UAE a year ago.

The company, which posted a consolidated worldwide turnover of $2.1 billion (Dh7.7bn) in 2007, protects business transactions totalling $800bn.

And Anil Berry, Regional Manager (Middle East), says more and more GCC companies are looking seriously at credit insurance.

Euler Hermes, a subsidiary of AGF and a member of the Allianz Group, is listed on Euronext Paris.

What is the current market situation for credit insurance in the UAE and the rest of the GCC region? Do you think companies that failed to take out credit insurance are suffering now?

Definitely companies without credit insurance have more concerns. Not only because their current assets – trade receivables are usually one of the largest assets of a business – are not covered, they also have problems deciding which customers they should offer credit terms to for goods or services, as they do not have sufficient information about their customers' liquidity and whether they have the ability to pay them back. Euler Hermes not only provides cover against the non-payment of trade credit for companies in the UAE, we are also supporting our clients by helping them decide whom to offer credit. We do our own in-house credit assessment of buyers in the GCC and notify our clients when we believe they can extend credit to a new or existing customer to assist with their trading relationship and promote trade.

When did you enter this market and how do you expect the business to develop over the next five years?

Credit insurance is a relatively new concept in the GCC and we have yet to heavily market our products in the region. We set up the operation in 2007 and developed local relationships with key partners and buyers so we could locally assess business credit risk. However, we have been writing business and underwriting risk in the Middle East for a number of years. We have the largest operation of any credit insurer in the GCC and currently have a dedicated trade credit team of 24 based in the region. This will continue to grow in 2009. We estimate the premium income in the market to be in the region of 15 million euro (Dh76.3m) to 20m euro. We expect to have a portfolio of 15,000 companies and to cover transactions worth eight billion euro within the next five years.

Are you receiving many claims in the UAE and the rest of the region and do you expect the number of claims to go up?

A number of clients have already received claims payments from us as a result of businesses in the GCC failing and we are actively working with a number of clients to collect overdue debts in the UAE and overseas. We are expecting a 25 per cent increase in claims payments in 2009 in the GCC.

The construction and real estate sectors have been slowing in the region due to the credit crunch and banks' reluctance to lend. Do you think UAE banks and financial institutions need to worry about the credit quality of these sectors?

We are expecting more challenges in the construction sector and failures in 2009 as a result of the slowdown in demand for real estate. We provide cover to companies selling to the construction sector and have increased our exposure to a number of companies in the sector as we have taken on new clients. In order to support new lines of credit, we have requested additional financial information from the buyers so we are aware of the credit quality before we increase our exposure.

Are you planning to increase premiums in view of the increased number of defaults and repayment problems?

We are increasing our premium rates in the GCC by 10 to 20 per cent to reflect the increased risk in the market. Our objective is to ensure that the re-pricing of our portfolio reflects the current risk environment and the exposure we are writing. However we are witnessing unrivalled demand for our products and premiums are still very competitive.

How do you see the outlook for your company in 2009?

We are expecting a very high demand for credit insurance this year in the region and worldwide. To deal with this kind of demand, we have invested in the region. The relationship between us and our customers will be critical in the next few months as they seek our advice on who to trade safely with and to what levels.

PROFILE: Anil Berry, Euler Hermes

Berry, 39, has an economics and law degree from the UK's University of East Anglia and began his career as a graduate trainee at Sun Alliance Insurance in London.

He qualified as an associate chartered insurer in 1998.

Euler Hermes has the largest operation of any credit insurer in the region and is the world's leading credit insurer.

Berry has worked at Euler Hermes for 12 years and during this time he has been responsible for underwriting risk, business development and managing the company's small and medium size enterprise and multinational business accounts.

In recent years, he has been involved in the launch of a number of products aimed at the SME, banking and finance sectors.