The pattern is consistent enough to plan around. Demand for trade credit cover is thin while payment behaviour is good, because the premium looks like a cost with no visible benefit. It rises sharply once a sector has produced two or three failures — at which point the buyers a policy is most wanted for are the ones an underwriter is least able to accept.
That is not obstruction. Credit insurance prices a portfolio of buyers, and it works because most of them keep paying. A submission that consists mainly of the buyers a supplier is already worried about is not a portfolio, and pricing it honestly produces a number nobody wants.
What does work is whole-turnover cover taken while the book looks boring, with limits reviewed as the book changes. The supplier gets a facility that behaves through a cycle rather than one negotiated at the worst moment of it, and the underwriter gets the spread of buyers the product depends on.
Two things reach our desk more often than they used to. The first is concentration: suppliers whose single largest buyer accounts for a third of turnover, which is a credit exposure that would be intolerable if it were on a bank’s books rather than a sales ledger. The second is extended terms used as a commercial lever — 90 days offered to win an account, and then 120 taken. Both are underwritable. Both are much easier to underwrite before they have gone wrong.
This is what we see, on our own book and in the enquiries that come in. It is not a market forecast, and any supplier reading it should take a view with their broker on their own ledger rather than on ours.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
