Credit insurance in demand as lacklustre market conditions persist

Although the number of overdue accounts has decreased since 2009, 2010 is only looking marginally better with a real turn around in bad debt not expected until the third and fourth quarters of 2010.

Either way, January, February and March are critical months to monitor whether debtors begin making payment on their increased December purchases since “returns and defaults to suppliers now provide a good indication of what the first and second quarters of 2010 will look like” says Bridgette Wood, Business Unit Leader, Credit and Political Risks, Alexander Forbes Risk Services.

One positive development that has emerged from this wait-and-see scenario is that “businesses have started managing their debtors far more closely – with overdue accounts now reviewed at executive level and credit insurance in high demand” says Wood. And with insurers finding it increasingly difficult to secure reinsurance in a tight global market, the cost of purchasing reinsurance for debtors’ cover remains high.  

Regarding South Africa’s export businesses, the tough trading conditions in the first quarter of 2009 saw many foreign companies’ credit lines withdrawn or downscaled. As such “the large claims experienced in this quarter saw most local clients avoiding new international trading commitments, preferring to stick to established networks” said Wood.

Even now, obtaining credit cover to trade abroad remains a challenge as many international credit rating agencies and information bureau struggle to get the correct information on companies.

Certainly, following the turmoil of 2009, any financial statements or business assessments from 2008 provide little comfort, and certainly no insight into how well companies have weathered the global economic downturn.

So, for the time being “credit insurance is likely to remain in demand with wise companies remaining risk averse in their trading relationships, and cautious on their debtors’ books” predicts Wood.