Four trends set to shape the trade credit insurance market in 2018
Despite the economic instability observed in 2017, the Global Credit Insurance market is expected to witness expansion in the near future and there is generally an upward trend in corporate insolvencies.
These factors have contributed to an increased awareness of and focus on trade risks on credit.
Demand for credit insurance continues to grow as new markets open up and trade continues to become more global. However, the market is clearly cyclical, with a strong correlation with GDP. Here are four trends expected in trade credit insurance in 2018.
Trend 1 – Global growth accelerating
According to the AU Group1, global growth is finally accelerating, although at a slow space. This trend, observed in late 2017, is expected to continue into 2018.
Although the USA’s growth is still disappointing, Europe and emerging markets have seen good, albeit not great, momentum. The AU Group forecasts GDP to grow at about 2.9% in 2017 and 2018.
Behind this growth are a number of economic boosters including:
- Inflation which creates a nominal boost to confidence and investment;
- An increase in consumption and turnover; and
- Trade that is adding to growth.
However, one should be cautiously optimistic as reflation could occur and investment is largely financed by debt.
Trend 2 – Trade credit insurance becomes essential in the fast-changing risk environment
In contrast to the last few years – which have seen little growth in the trade credit insurance market, the global economic outlook is much brighter, with trade growth driven by exports from predominantly China, Asia and Germany.
However, this growth has been threatened by the uncertainty of particular risks. For example, regional conflicts and political developments such as Brexit and the US administration’s shifting policies on trade, have seen corporates increasingly seeking protection against non-payment and non-fulfilment of contracts due to greater supply chain volatility.
Global take-up of trade credit insurance – which helps businesses trade and grow safely by covering the risk of late or non-payment of unpaid invoices – has been climbing steadily.
As a top trade credit insurer in South Africa, Credit Guarantee can assure you that your company’s debtors’ book is your largest asset. Therefore, you need to protect this asset against the non-payment of debts due to various reasons such as insolvency or payment defaults. Protection ensures your company remains profitable and your cash flow is protected.
In addition, our unique strength lies in our ability to secure a vast amount of information and market intelligence from our domestic and international network of contacts, and to interpret data to support your company – in both local and international markets. With us by your side you can make informed decisions about the countries and companies you do business with and secure your risk accordingly.
Trend 3 – Certain countries get their risk rating upgraded
A separate report from the AU Group states that the global economic situation is improving, and all the economic indicators confirm this.
Certain Global underwriters have upgraded the country risk rating of numerous countries, and more upgrades than downgrades have been observed.
Indonesia is one such country that has been upgraded in ranking. The emergence of the middle class has brought about strong domestic demand and is boosting the GDP Growth, expected to reach 5.3% in 2018 according to IMF forecast. The government has made a significant effort to improve the business climate and attract foreign investments.
In addition, Egypt’s rating has recently been upgraded. Since the end of 2016, Egypt has made large reforms to bring its economic system more in line with IMF expectations allowing the increase of external financing.
Western Africa’s Senegal is attracting funding, sufficient to maintain the country in good health, and Uganda’s level of foreign exchange reserves performs at a good level. This in sharp contrast to Gabon which has recently been downgraded for much uncertainty compounded by strikes within the country.
The number of upgrades is positive news for certain countries, and investors who are looking into Africa. Good risk ratings encourage more trade, both in the domestic and foreign spheres.
If you’re considering trading in Africa contact Credit Guarantee. We are international trade credit experts already underwriting several billion Rand exposure through exports from South Africa into the rest of Africa. Take advantage of our African footprint and vast wealth of intelligence to help you expertly assess the credit and risks of any country you intend to trade in and protect against non-payment. Contact us today.
Trend 4 – The retail sector continues to be difficult
Research conducted by Willis Towers Watson2, shows that the retail sector continues to be very difficult for the trade credit market. For example, the recent bankruptcy of Toys R Us will lead to tighter constraints on capacity, with demand on the rise.
Large losses are impacting the trade credit insurance carriers, and this may tighten their underwriting stances.
Whatever 2018 brings you, make sure you’re covered and insure your debtors book with trade credit insurance from Credit Guarantee.
Credit Guarantee is a licensed financial service provider.