Banks in Canada that once looked to each other for cover against companies not paying down their credit are now increasingly turning to insurance brokers.
Short term credit and project financing coverage is relatively new for the insurance market and mostly a broker book of business according to Richard Abizaid, XL Catlin’s political risk and trade credit leader for the Americas.
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“The threat and political risk market has, since the financial crisis, paid substantial claims, which would support that heightened geopolitical risk as well as credit risk,” he said. “So the connection between geopolitical risk and commodity prices and the combination of the two have really resulted in some significant claims in our market since the financial crisis.
“Most of that business is handled by small, domestic brokers, regional brokers. But
Aon and
Marsh are also players in that market but there are a lot of specialty brokers that handle that business.”
Though the two policies cover non-payments from one party to another, short term credit cover is for purchases while structured credit cover is for investments or a loan.
“There’s short term credit insurance which is basically covering corporates that are buyer-seller type relationships. So a producer of widgets is selling to a buyer of the widgets and we cover the non-payment by the buyer,” Abizaid said. “We can also support banks which purchase those receivables.”
“Then there’s another type of credit insurance that’s more on the structured credit side and what we’re seeing there is interest from Canadian banks that are lending to Canadian corporates for non-trade, general corporate capital, general purpose loans and project financing. A renewable power project for example,” Abizaid added.
Any corporation producing or selling a product could have appetite for short term credit coverage, according to Abizaid.
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