Credit insurance

Under a credit insurance, the insurance of the supplier credit is understood. However, it does not include loans such as mortgage loans or bank loans. These are commonly referred to as payment protection insurance or credit default insurance.

There are different types of credit insurance. The most famous is the trade credit insurance, which is a credit insurance in the strict sense, because the policyholder is also the beneficiary in case of damage. Credit insurance in the broader sense are the fidelity insurance and deposit insurance.

When trade credit insurance (synonym: trade credit insurance or debt cancellation insurance ) of bad debts in the delivery of goods or services is the subject of insurance coverage, which is why in recent years more and more the term has established bad debt insurance. Here, the lender secures.

Investigating the concept

The term credit insurance derives from the fact that there is a time lag between the delivery of goods from one company to another or the provision of a service and the payment thereof (generally between 30 and 180 days ). The supplying company therefore grants a loan until the final payment. These so-called trade credit amounts in Germany, according to the Euler Hermes AG Germany annually about 340 billion euros.

Historical Background

Any company that provides a product or provides a service on behalf should note the risk of unpaid lasting demand and secure if necessary. Device company in the declining liquidity constraints, this may - depending on the amount of outstanding debt - lead to financial problems to the insolvency of their own company. The credit insurance covers not only the indemnity for loss requirement, but also the credit check of decreasing enterprises at home and abroad.

With the Hermes Credit Insurance Bank Aktiengesellschaft (now Euler Hermes AG Germany ) was first established in 1917 in Germany on this issue specialized insurance companies. The objective was the lines of insurance trade credit insurance, surety insurance and fidelity insurance, which were isolated previously on large insurance companies to bundle, to offer businesses expert protection against liquidity shortages.

1923, the Rheinische Bank deposit guarantee insurance corporation was founded, the first specialized exclusively to the deposit insurance. Early 60s followed in the wake of a change of name to General Credit Insurance Company ( now Coface AG), the trade credit insurance.

In 1954, the Gerling Group Gerling Speziale (now Atradius ), which also specialized in the credit insurance.

Forms of credit insurance

When credit insurance following forms can be distinguished:

• Trade credit insurance, are covered in the receivables from deliveries and services
• Capital goods credit insurance, which hedges the economic risk associated with payment terms longer than six months
• Political risks can be secured by the export credit guarantee ( Hermes Hermes guarantee or coverage) of the Federal Republic of Germany.

Operation

The contracts for trade credit insurance normally combine financial and insurance services for the insured, ie Debt holders. The credit insurer initially carry out a review of the creditworthiness of the customer. For this purpose, he uses a variety of information ( business information services, banking information, publications in the Federal Gazette own information, their own payment experience, etc.). Returns this test gives a positive result, the credit insurer underwriting cover letter at a certain height ( = "Limit" ) will grant. Within the limits of this limit revolving the open items of the insured for goods and services than insured apply. The insured event occurs when the purchaser is insolvent or in default of payment. In the latter case, the supplier is usually transmitted after an unsuccessful execution of the order for payment procedure own debt recovery in the credit insurer. Remains of this collection of receivables unsuccessful after a pre-agreed period, occurs the so-called " protracted default " one ( pre- plated insurance case). The amount of the award in both types of insurance cases is between 70 and 90% of the net claim.

The insurance cover may also include the so-called " manufacturing risk ". If the buyer defaulted, while the commissioned product is still in production, the compensation of the services already provided inputs from the suppliers calculated.

In trade credit insurance contract, the insurer retains each the right to cancel the insurance cover for individual clients or to reduce, ie to remove the limit or lower. The supplier must then for future supplies and services to its customers only reduced or no insurance coverage. The main reason for such measures, the assessment of the creditworthiness of the buyer by the trade credit insurer is itself rises from his perspective, the probability of the occurrence of the insured event, he deprives the insurance coverage.

Premiums and fees

According to the nature of the services are covered at both an insurance premium for the insurance benefit as well as various fees for financial services.

The insurance premium is calculated on either the insured turnover ( sales bonus ) or to the insured open items (balances premium). The sales bonus includes a flat-rate deduction for non- covered supplies / services and can accurately quantify and calculate usually a policy year in advance. The premium balances ensures that only actually insured claims an insurance premium is paid. However, this requires a monthly determination of these open items. Due to fluctuations in the open items and their coverage by the insurer the amount of the premium can not be determined precisely in advance of a policy year.

The premium is calculated in parts per thousand of sales / open items. In the calculation of the flow rate premium in addition to economic situation, financial strength of the credit insurer etc. also company-specific factors, for example: - Average payment - own industry - customer industry - export share - their own credit, for example, Mahnrythmus, due dates, billing period - bad debts in the past.

In general, the premium rate is between 1.0 and 3.0 per thousand.

In trade credit insurance contract usually fall even fees for the following financial services: - Credit Check ( between 5 and 75 euros per insured customers ) - Collection (order fees, service fees, contingency fees, etc.).

Angela Crop Services

Accounts receivable

Insured Receivables Receivables typically form the basis for the resale of debt by forfeiting or factoring but also for the securitization in the form of asset-backed securities. The compensation claims of a WCF be ceded to the Forderungsankäufer.

Top -up cover

In the case of incomplete cover letter ( partial acceptance ) by a credit insurer, the market offers some so-called " top -up cover " on, to increase the limit of the credit insurer and so assume part of the risk of default.

Special case: State export warranty

For deliveries to markets where the political risk outweighs the economic risk, provide private credit insurers usually only limited or no coverage protection ready. This usually provides the government export promotion instruments to secure receivables. These follow the same system (combination of credit check, cover the acquisition, collection ). In Germany these are the Hermes coverages. These can be linked to financial instruments such as forfaiting and factoring.

Related forms of insurance

To the broader sphere of credit insurance still counts the consumer credit insurance, but exclusively aimed at banks, for example, to hedge MRP or installment loans from private individuals. She has in these times of rising unemployment, a meaning as the corresponding increase of judgments shows. In this extended environment, the deposit insurance is to settle, like a bank guarantee or a bank guarantee works similarly. Similarly, the travel insurance certificate is economically a credit insurance in connection with vacation packages.

Some of the fidelity insurance is still called, whose membership in the credit insurance, but probably can be derived only from the fact that this product is usually offered by the credit insurance companies.

Recent changes and discussion

Relation insurance premiums / Assumed Liability volume

These basic data are available in the insurers about the relation 1:350 opposite: That guaranteed volume of coverage in the amount of 350 billion euro is facing an ingested insurance premium in the amount of 1 billion euros. The Obligoübernahme let the credit insurer to pay only a fraction of the policyholders - it is not only the race to the bottom between the providers to find the lowest premiums to blame. The reinsurance of a portion of the acquired commitments does not change anything. The following scenario illustrates the fragility of the system: If only 40 % of the acquired cover volume is taken up by current commercial real claim and threaten only claims in a cumulative volume of one percent of that actually used cover volume, the credit insurer parts of its equity to regulate the damage must use. The protection of shareholders' equity forces the insurer to enormous economic sensitivity.

Rationalization processes in the trade credit insurers

Take credit insurers in their risk departments every day thousands of credit decisions. But in recent years, more computerized, standardized procedures in the areas introduced credit rating and credit decision ( credit evaluation and the award of cover letters ) analogous to the bankable distinction between market and back ). Tend to individual credit decisions by algorithms (eg fuzzy logic) are replaced. In their commercial departments all three major credit agencies implement uniform transnational contract standards and substitute individual contract administration through online contract handling and telephone service hotlines. Risk and contract data in this form are automatically available and quickly accessible available mass for the decisions of top management, the credit insurer. Result is usually a lump sum, mass -wise downgrade of insurance coverage for companies of a certain rating class, region or sector. In contrast to the downgrades by rating institutions with which they are respectively about the creditworthiness of an individual debtor, a credit insurer " push-button " always the simultaneous devaluation of a variety of businesses and thus an enormous volume of loans to implement. Such risk mitigation measures are in their real economic effect comparable to the rapid devaluation of financial derivatives such as collateralized debt / loan obligations ( Warren Buffett: " WMD ").

Behavior of trade credit insurers in the current economic and industry crises

The financial and economic crisis of 2008 /09 made ​​the trade credit insurer in the midst of their rationalization processes. With the automotive industry beyond the first time an industry has been affected by an increased risk of bankruptcy, which was well organized and well connected politically. This meant that the credit insurers who otherwise act more in the background had to justify " massive disruption of supply chains ," in the business press for. Given the fragile relationship insurance premiums / Assumed Liability volume, then the suspicion that credit insurers tend to risks of economic downturns tend to dramatize than to assess realistic. As the automotive industry recovered faster than expected in 2010, this discussion soon ebbed away again. On undifferentiated and pauschalierenden action by the credit insurer, however, nothing has changed, such as the recent widespread downgrading and cover cuts for companies registered in Greece or company demonstrated the European solar industry.

See:

Mark Scheele: The calm after the storm, trade Sheet 4 May 2011, reprinted: http://www.gaccsouth.com/fileadmin/ahk_atlanta/Dokumente/News/110504-HB-Neue_Energie_fuer_die_US-Wirtschaft.pdf

H. Fromme / J. Tauber: transparency initiative after loss of confidence, FTD 22 December, 2011 http://www.ftd.de/unternehmen/versicherungen/:kreditversicherer-transparenzoffensive-nach-vertrauensverlust/60145929.html (Version of January 12, 2012 at the Internet Archive ) Template: Web Archive / Maintenance / Linktext_fehlt

H. Fromme: Credit insurer Euler Hermes continues to FTD, December 8, 2010 http://www.ftd.de/unternehmen/versicherungen/:kreditversicherer-euler-hermes-baut-um/50203236.html ( version of 10 December, 2010 at the Internet Archive ) Template: Web Archive / Maintenance / Linktext_fehlt

Thomas Schmitt: Industry sees system errors in credit insurance, Handelsblatt, December 7, 2010 http://www.handelsblatt.com/unternehmen/banken/angst-vor-krise-industrie-sieht-systemfehler-in-der-kreditversicherung/3658668.html

H. Fromme: Credit Insurance - branch with loose contact, FTD, April 8, 2010 http://www.ftd.de/unternehmen/versicherungen/:kreditversicherung-branche-mit-wackelkontakt/50098027.html ( Version of 11 April 2010 at the Internet Archive ) Template: Web Archive / Maintenance / Linktext_fehlt

Credit insurance companies ( selection)

Market leader in Germany

• Coface Germany
• Euler Hermes
• R V insurance

Other

• Atradius
• Axa
• ONDD
• TCRe
• QBE
• VHV insurance

Austria

• OeKB Versicherung AG ( Austria )
• Atradius Austria
• Prisma_Kreditversicherungs -AG
• Coface Austria
• R V insurance
• Guarantor credit insurance corporation