Credit Insurance Market Survey

Credit Insurance Market survey

2 02 0 CREDIT INSURANCE MARKET SURVEY 2020 INSURERS & SHARES

MARKET SHARE

The trade credit insurance market remains very Euler Hermes remains the largest credit insurer with oligopolistic with 3 “global” insurers representing more 34.6% market share followed by Atradius 24.5% and than 75% of the total premium (estimated to be approx. Coface with 17.2% as of December 31st, 2019. €7 billion in 2019).

34.6% 24.5%

17.2% • Atradius • Coface Euler Hermes 23.7% • • Others

This calculation is an estimate by AU Group, excluding China Export insurance company which achieved a turnover of approximatively & Credit Insurance Corporation (“Sinosure”), the public Chinese €1.4 billion (2018 figures, net premium earned).

TYPES OF INSURERS

The International Credit Insurer & Surety Association “Niche” insurers, characterised by expertise in: (ICISA) comprises more than 50 members that provide ➤ particular products: Excess of loss, shared excess Trade Credit Insurance across the world. However, two cover, top-up, single risk (e.g.: AIG, Chubb, Garant, Nexus, main categories of insurers can be distinguished: “Global” Liberty Mutual, Lloyd’s, Markel, QBE, Tokio Marine, XL and “Niche” insurers. Catlin, Zurich etc.) ➤ certain geographical areas (e.g.: ATI, Cesce, Credendo, “Global” insurers, characterised by: 2 913 3 000 FCIA, ICIC, QBE, Sace etc.) ➤ a strong international• Before presence2018 • 2018 • 2019 ➤ different types of risk: political risk, non-transfer (e.g.: ➤ detailed information on very large numbers of buyers Beazley, Liberty Mutual, Lloyd’s, Zurich...) 2in 500 their global databases ➤ global capabilities in providing credit management 2 012 services 2 000 Leading insurers in this category: Atradius, Coface, Euler Hermes 1 481 1 500

1 000

02500 - 2020 A.U.Group ©

0 Atradius Coface Euler Hermes

500 475 • 2018 • 2019 431 • Before 2018 • 2018 • 2019

400 ? 345 343 +10% 291 300 225 228 209 203 200 +18% 147 +8% 122 100

0 Atradius Coface Euler Hermes Atradius Coface Euler Hermes

-100

-200 34.6% 24.5%

17.2% • Atradius • Coface Euler Hermes 23.7% • • Others

CREDIT INSURANCE MARKET SURVEY 2020 TRENDS & FINANCIAL PERFORMANCE

TURNOVER OF THE MAIN INSURERS (M€)

2 913 3 000 • Before 2018 • 2018 • 2019

2 500 2 012 2 000

1 481 1 500

1 000

500

0 Atradius Coface Euler Hermes

KEY FACTS

The trade credit market has posted strong growth in 2019 ➤ Coface confirms it successful turnaround started 2 (around + 7%) and all the main insurers have shown good years ago and sees an increase in revenue of +6.9%. performance following the trend of the overall market. This growth is mainly due to its policyholders’ business 500 growth, new business development and the acquisition ➤ Atradius continues its very regular475 growth over the of PKZ (a credit insurer leader in Slovenia). In February past 5 2018years (+6% 2019 vs 2018)431 and has now surpassed the Before 2018 2018 2019 • • • 2020, Natixis,• Coface’s• majority shareholder, sold 29.5% €2 billion revenue mark. A new CEO, David Capdevila ? 400has been appointed on the 1st of January 2020. The of the credit insurer’s capital to Arch Capital Group (See Shareholder structure hereafter). 345 improvement 343 of its Trade Credit Insurance+10% activity has been consistent291 in all regions of the world, even in Spain, ➤ As in 2018, Euler Hermes posted the best performance 300its largest market, in a very challenging competitive among the “big three”: +7.7% (+7% at constant scope environment. 225 and FX) reaching 2,9 billion euros in revenue. Its new 228 209 business result has been higher than ever, combined with dynamic203 organic growth, especially in North America and 200 +18% Asia Pacific. Going deeper into digitization, Euler Hermes 147 has launched new products available through “API” such +8% 122 as “Single Invoice Cover” dedicated to fintechs and 100 start‑ups.

0 Turnover variation 2019 vs 2018 Calculated growth Atradius Coface Euler Hermes Atradius Coface Euler Hermes Atradius 6.0% Coface 6.9% -100 Euler Hermes 7.7%

-200

03 - 2020 A.U.Group © 34.6% 24.5%

17.2% • Atradius • Coface Euler Hermes 23.7% • • Others

2 913 3 000 • Before 2018 • 2018 • 2019

2 500 2 012 2 000

1 481 1 500

1 000

500

0 CREDIT INSURANCE MARKET SURVEY 2020 Atradius Coface Euler Hermes PROFITABILIY OF THE MAIN PLAYERS (M€)

OPERATING RESULT (M€) NET PROFIT (M€)

500 475 • 2018 • 2019 431 • Before 2018 • 2018 • 2019

400 ? 345 343 +10% 291 300 225 228 209 203 200 +18% 147 +8% 122 100

0 Atradius Coface Euler Hermes Atradius Coface Euler Hermes

-100

-200

Atradius records a tremendous increase of its operational profit +18%, when Coface posted an increase of +8% Covid-19 situation and Euler Hermes +10%. 2019 has seen net profit at and impact on insurers’ unprecedent levels for the “big 3”. profitability: ➤ Atradius has posted a net profit of €228M, +12,5% compared to 2018 (€203M); showing a strong profitability Credit insurers are facing probably the ratio of 11.3% (Net Profit/Turnover). most difficult situation since they started ➤ With a net income up by 20%, Coface’s profitability business and the magnitude of the ratio reached 9.9% (Net Profit/Turnover) and produced an expected losses is such that in most of the excellent performance: €147M “cradle” states of credit insurance (Belgium, Denmark, France, Germany and UK), the ➤ Euler Hermes is now fully integrated in the Allianz insurers have sought the support of local Group and, being one of its main profit contributors, is governments. As a result, these European very discreet in its financial communications; it has not countries have concluded state reinsurance disclosed its net profit for 2019. However, considering the agreements to be able to cope with the 10% increase in the operating result shown above, we can deluge of claims expected in the second half assume that Euler Hermes not only has the highest net of 2020 and the beginning of 2021. Other income of the three, but has also recorded a level of profit countries might follow with government never seen before. support but there is no consistent approach across Europe. Nor is there, as of today, any significant support outside of Europe.

04 - 2020 A.U.Group © 600 000 569 810 502 241 500 000

400 000 346 595

300 000 • Atradius 200 000 • Coface • Euler Hermes 100 000

0 Revenue per capita (in Euro)

CREDIT INSURANCE MARKET SURVEY 2020 MEASURE OF PERFORMANCE

NET COMBINED RATIO (in%)

Atradius Coface Euler Hermes 140 130 120 110 100 Proﬁtability level 90 80 70 60 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

➤ The insurers’ profitability is determined by their Loss ➤ The top 3 insurers are showing a wider spread in their Ratio (claims/premiums) and their Combined Ratio (Loss results in 2019 (than in 2018), but Atradius heads its ratio plus overhead expenses). During the “subprimes” competitors with a net combined ratio of 73.4%. financial crisis more than 10 years ago, insurers were shaken by increased payment defaults, bankruptcies and Net Combined Atradius Coface Euler Hermes the resulting claims paid to their insureds. The economic ratio (in%) impact of Covid-19 on insurers’ loss ratio will be reflected 2016 77.4 97.4 79.8 in our Market Study next year. 2017 75.5 86.5 80.5 2018 76.7 79.6 77.9 ➤ The theoretical break-even point of the combined ratio 2019 73.4 77.7 79.9 is an estimated 100% (above which Insurers consider that their operations generate a loss).

Staff

600 000 569 810 Underwriters Atradius Coface Euler Hermes 502 241 Number of employees 3 531 4 273 5 800 500 000 Turnover per capita 569 810 346 595 502 241 400 000 346 595

The headcount to revenue ratio reflects the company’s 300 000 Atradius productivity. Atradius is the company presenting the best • Coface combined ratio and revenue per capita. 200 000 • • Euler Hermes 100 000

0 Revenue per capita (in Euro)

05 - 2020 A.U.Group ©

Atradius Coface Euler Hermes 140 130 120 110 100 Proﬁtability level 90 80 70 60 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Atradius Coface Euler Hermes

1.45% 42.2% 3.64% 57.3%

100% 94.91%

0.5% • Grupo Catalana Occidente • Natixis • Employees • Floating • Allianz • Euler Hermes • Others

Atradius Coface Euler Hermes

1.45% 42.2% 3.64% 57.3%

100% 94.91%

0.5% • Grupo Catalana Occidente • Natixis • Employees • Floating • Allianz • Euler Hermes • Others 2 913 3000 • 2014 • 2015 • 2016 • 2017 • 2018 • 2019

2500 2 012 2000

1 481 1500

1000

500

0 Atradius Coface Euler Hermes 2 913 3000 • 2014 • 2015 • 2016 • 2017 • 2018 • 2019 2500CREDIT INSURANCE MARKET SURVEY 2020 2 012 2000 SOLVENCY & EQUITY

1 481 1500

1000 Net Equity (M€)

962 950 500 1 000 3 500 ➤ Due to further changes in financial894 regulations • Before 2018 2 870 (Solvency II), insurance and reinsurance companies are 3 000 0 • 2018 required800 to 653increase673 their capital ratios to be in line with 2019 the risks they carry. •Atradius Coface 623 540 Euler569 Hermes 2 500 ➤600 Over the past 5 years,512 credit insurers have been 2 009 1 924 strengthening their equity. For instance, Atradius and 2 000 Euler400 Hermes report an equity level approximatively equal to their annual turnover, Coface Equity (€1• 924M)2017 is much higher than its Turnover (€1 481M). • 2018 1 500 200 • 2019

1 000 0 Atradius Coface Euler Hermes Atradius Coface Euler Hermes

T oTAL potential exposure (BN€)

962 950 1 000 As 3of 500 December 31st, 2019, the total exposures were: 894 ➤ Atradius €673 Billion (vs €653B) in 2018. • Before 2018 2 870 ➤ Coface3 000 €569 Billion• (vs2018 €540B). 800 653 673 ➤ Euler Hermes €950 Billion2019 (vs €962B). • 623 540 569 2 500 600 512 2 009 1 924 2 000 400 • 2017 • 2018 1 500 200 • 2019

1 000 0 Atradius Coface Euler Hermes Atradius Coface Euler Hermes

Reinsurance

Reinsurance contributes significantly to the solvency growth without reinsurance. These insurance companies of insurance companies. Its role has increased as credit use reinsurance treaties. insurance becomes more important for the growth In 2020, credit insurers in some countries have entered of trade credit following the tightening of traditional reinsurance treaties with their local governments which financing across the world. wish to support trade inter-company credit and assist Atradius, Coface and Euler Hermes which currently cover business recovery. 80% of credit insurance risks, would be unable to maintain

Shareholder Structure

Atradius Coface Euler Hermes

1.45% 42.20% 3.64% 57.30%

100% 94.91%

0.50% • Grupo Catalana Occidente • Naǎxis • Employees • Floaǎng • Allianz • Euler Hermes • Others

In February 2020, Natixis, Coface’s majority shareholder, only 12.2% of Coface’s capital. This operation has been sold 29.5 % of the credit insurer’s capital to Arch Capital announced but is not effective yet (to be agreed by the Group, a Bermuda-based insurer listed on the New York regulator (ACPR)). Stock Exchange. After this operation, Natixis will hold

Financial rating of the top insurers (Update June 2020)

Financial Strength Rating Companies Standar & Poors Moody’s Fitch A.M. Best

A+ A2 A A AIG outlook stable outlook stable outlook stable outlook stable

A2 A Atradius outlook stable outlook2 913 stable 3000 2014 2015 2016AA 2017 2018 2019 A++ CHUBB • • • • • • outlook stable outlook stable 2500 A2 AA- COFACE 2 012 outlook negative outlook negative 2000 AA CREDENDO outlook stable 1 481 1500 AA Aa3 A+ EULER HERMES outlook stable outlook stable outlook stable

A A2 A 1000 LIBERTY MUTUAL outlook stable outlook stable outlook stable

A A2 A MARKEL 500 outlook stable outlook stable outlook stable

A+ A1 A+ A QBE 0 outlook stable outlook stable outlook stable outlook stable Atradius Coface Euler Hermes AA- Aa3 A+ ZURICH outlook stable outlook stable outlook stable

1 000 890 3 500 673 • 2015 • 2016 • 2017 2 870 800 653 569 3 000 • 2018 • 2019 623 540 600 512 2 500 2 009 1 925 400 2 000 • 2017 • 2018 200 • 2019 1 500

0 1 000 Atradius Coface Euler Hermes Atradius Coface Euler Hermes

1 000 3 500 890 • 2017 • 2018 • 2019 • 2015 • 2016 • 2017 2 870 800 673 3 000 • 2018 • 2019 653 569 623 540 600 2 500 512 2 009 1 925 400 2 000

200 1 500

0 1 000 Atradius Coface Euler Hermes Atradius Coface Euler Hermes about

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Disclaimer Document («the Survey») is published by AU Group for information purposes only. The Survey cannot be considered as providing specific advice. Readers should make their own independent assessment of this information to make their own decisions. The Survey was prepared based on information published by ICISA, insurance companies operating in the credit insurance market and rating companies. It contains data and estimates made by AU Group based on several assumptions. Although the information collected from ICISA, insurance companies, and rating companies are believed to be reliable, they have not been independently verified by AU Group. AU Group gives no warranty (express or implied) with respect to this information, regarding the accuracy, completeness, INSURANCE, FINANCING, MANAGEMENT OF or adequacy of this information. AU Group cannot be responsible for any loss or damage resulting TRADE RECEIVABLES - POLITICAL RISK AU Group in any way from the use of the Survey. In no event will AU Group, its related companies, partners, agents or employees, be liable to anyone for any decision made or action taken in reliance on the information contained in this study, nor for any consequential, direct or indirect, damages. Unless www.au-group.com otherwise stated, any views, forecasts and estimates are those of AU Group as at 30/06/2020 and are subject to change without notice. This document is the exclusive property of AU Group. It HQ : 91 rue du Faubourg Saint Honoré cannot be used, reproduced, represented, modified, or communicated in any other format without the prior and express permission of AU Group. This document is not intended to be distributed in any - F - 75008 Paris - +33 1 42 66 66 46 jurisdiction in which this would be prohibited.