Moody’s ratings on commercial credit insurance amid the coronavirus pandemic

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Moody’s Investors Service has announced the ratings in terms of financial strength (Insurance Financial Strength-IFS) and debt ratings, of five trade credit insurance groups: Atradius Credito y Caucion S.A. (A2 negative) and the other main operating companies of Atradius N.V. (Atradius); Compagnie Francaise d’Assurance pour le Comm. (Coface, A2 negative); Euler Hermes SA (Euler Hermes, Aa3 stable); Clal Credit Insurance (Clal, A3 negative) and BSSCH the Israeli Credit Insurance Company (ICIC, A3 stable). The outlooks for Atradius, Coface and Clal have been changed to negative, from stable. The outlooks for Euler Hermes and ICIC remain stable.

Although Moody’s expects Euler Hermes and ICIC’s credit profiles to be affected by pressures on the financial market in the context of coronavirus spread, it believes that the parental support they benefit from will limit the impact on their credit profiles.

The new ratings reflect Moody’s expectation that the insurers’ credit profiles will be broadly resilient to the widespread economic and financial markets disruption related to the coronavirus given that these insurers’ credit profiles are supported by strong capitalisation levels heading into this crisis along with the short-tail nature of trade credit exposures, which allows the insurers to quickly reduce limits and exposure in response to deteriorating market conditions.

Euler Hermes’ Aa3 IFS rating reflects its very strong and leading position in the credit insurance market globally, historically strong economic capitalisation, underpinned by Euler Hermes’ dynamic management of insured exposure and effective underwriting risk monitoring tools and strong underwriting profitability through the-cycle, albeit with an expectation of significant underwriting losses being incurred during 2020 related to the coronavirus.

“Any global economic shock tends to affect all industries and, implicitly, the commercial credit insurance segment. The expertise acquired as market leaders makes us confident that we will find the best solutions to overcome this crisis. We are monitoring in real time what is happening globally and we are ready to handle the challenges efficiently”, said Cristina Rusuleanu – Country Manager, Euler Hermes Romania

The financial strength of insurance in the context of coronavirus

Moody’s predicts the negative impact of insurers’ credit profiles in a severe stress scenario related to coronavirus. This could include a prolonged interruption in the activity of many businesses, serious damage to the financial markets, but also higher claims rates than were observed during the 2008/09 financial crisis.

The rapid global spread of the coronavirus has led to a deteriorating economic outlook, sharply lower oil prices and broad financial market upheaval, generating an unprecedented credit shock across many sectors worldwide. Small and medium sized enterprises (SMEs), to which the credit insurers have significant exposure, are especially vulnerable, with many at risk of insolvency in a prolonged disruption of their business, absent effective government support.

Moody’s expectation goes to the scenario in which profiles will be broadly resilient to the widespread economic and financial markets disruption related to the coronavirus. The insurer’s well developed risk underwriting practices limit their exposure to weaker entities that have smaller liquidity buffers and therefore are less likely to withstand the disruption to their businesses envisaged in our base stress scenario.

Moody’s expects the direct impact of financial markets’ volatility to credit insurers’ balance sheets to be moderate.

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