An increase in U.S. exports and economic turmoil around the world are boosting sales of trade credit and political risk insurance, industry leaders said.
"In the U.S., companies are trying to export more and more, and this drives the demand," for trade credit insurance, said
U.S. exports over the past 12 months were
Credit insurers protect the accounts receivable of companies doing business overseas. They verify foreign buyers and their ability to pay, and reimburse the insureds if the buyer defaults and fails to pay, Braun said. After paying a claim, credit insurers work to collect the money owed in the foreign country.
Trade credit insurance is estimated to be about a
"We have less market penetration in the U.S. versus
While U.S. companies are most likely to export to
As concerns about economic turmoil in
"We see an increase in
The perception of risk is changing, he said.
"People feel it's more risky doing business in
Political risk insurance, which is often sold with trade credit insurance, protects a company from a foreign government seizing its assets in that foreign nation. For example, Repsol, a Spanish oil company, recently had a subsidiary that was taken over by the government in
Banks like trade credit and political risk insurance, because they can be named as an additional insured on the policy, and can then use the foreign receivables as collateral,
The Arab spring uprisings, instability in
Over the past decades, there has been an upswing of the percentage of foreign direct investment covered by political risk insurance, growing from a low of 5% to 8% in the mid-1990s to the current level of 13% to 15%, according to the
The three largest trade credit writers are
Political risk insurance is the only insurance that covers all acts of war, and will also cover the risk of a sudden devaluation of currency, an important coverage for a company that is required to hold large deposits, Lennon said.
Trade credit and political risk insurance are often sold together because the perils often go hand-in-hand, Lennon said. "If there is economic destabilization, it generally moves towards political destabilization," he said. "That is the concern with
Returning to the Drachma could result in a currency depreciation of 50% or more, which could trigger high inflation, according to
There's a number of other countries where trade credit and political risk insurers will not write business. That can be due to a U.S. trading ban on the country, as is the case with
"We recommend that you take extreme care," Ariens said. "It's a very unpredictable world. What we try to do is to work with clients to bring the risk down."
With an influx of companies hoping to take advantage of Latin America’s rapid growth,
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|Source:||A.M. Best Company, Inc.|