Trade credit insurance rates could rise in 2015 due to the growing number of insolvencies and defaults across Europe, the Middle East, and Africa (EMEA), a report by insurance broker Marsh predicts.
Marsh’s Risk Management Research EMEA Trade Credit Market Update highlights that, although trade credit insurance rates are still falling across EMEA, the majority of these reductions are in Western Europe and larger companies are getting the most benefit.
According to Marsh’s research, 19% of Marsh’s EMEA clients reported rate increases on renewal in Q2, up from 9% in Q1. These rate increases were particularly acute in Africa, where 92% of Marsh’s clients reported rising rates on renewal in Q2.
Insolvency levels have increased in some Eastern European countries and across Africa. Companies are also encountering significant challenges in the Middle East, where they continue to feel competitive pressure. So, too, are some industries, including telecoms and IT.
The largest rate rises in trade credit insurance are being witnessed in Africa, where 92% of clients have experienced rate increases. This reflects their increasing level of insolvencies and defaults. Premium rates in the Middle East remain tight, although in general the region is relatively stable.
Tim Smith, MD in Marsh’s international trade credit practice, said: “Despite a global fall in consumer demand, the economy is continuing to grow across EMEA. This fragile trading environment means that some businesses are financially over-stretching themselves and, as they look to regain lost ground, may experience cash flow difficulties as a result.”
He added: “Rising rates are symptomatic of the trade credit insurance market’s growing unease at the number of insolvencies and defaults across EMEA. While insolvencies and default frequencies have already started to increase, we believe it will take between six to 12 months for the full extent of these incidents to affect trade credit insurance rates and market capacity.”