1. CORPORATE FAILURE AND THE IMPACT ON TRADE CREDIT AND POLITICAL RISK POLICIES
David Chadwick
2 July 2018

2. A. Trade Credit
Trade Credit Insurance (“TCI”) protects firms (suppliers) against the risk of not being paid for goods or services already provided following insolvency, protracted default or political upheaval.
TCI is a huge market (covering turnover of £315bn of trade in compared to £101bn in 1995); 300% increase in risk; 45% increase in premium within the same time frame; premium down/risk up.
Credit is a major aid to trade. Of every 5 Euros of short term credit given to firms; 1 Euro comes from banks; 4 comes from the supplier.
Therefore, corporate failure hits suppliers very hard and consequently the providers of TCI very hard too.

3. Recent corporate failures that have impacted TCI hard
HMV
Game
Woolworths
Toys R Us
Palmer and Harvey (£100m to TCI)
Monarch
Carillion – collapsed owing money to 25,000 – 30,000 separate businesses (£31m+ to TCI)

4. It has been said recently that claims on TCI across the UK sector running at £4m per week. Highest since new claims per day in Q
Premium rises predicted but what about over capacity? Corporate failure is a problem for providers of TCI, but also an opportunity. Now more than ever, TCI is needed.
And for lawyers …?
Many claims are very straightforward; policies are broad
Issues we have seen …?
Fraud by Insured (fictitious transactions … rare)
Counter selection of buyers against TCI
Under declaration of turnover
Enforceability issues
Failure to follow credit procedures

5. B. Political Risk Just a few short comments
In the credit context, this ‘political risk’ is as much to do with ‘country credit’ risk as opposed to corporate credit risk
Many emerging economies, either via direct state acquisition, para statals or state controlled corporates, purchase goods on credit terms or pre finance the sale of their commodity.
Some countries abilities to pay debt is heavily (overly?) reliant on global price of oil that they “sit on” as their major “cash crop”
E.g. Angola, Republic of Congo, Ghana, Colombia, Ecuador, Mexico, Venezuela etc

6. Oil prices have fluctuated dramatically over the last 10 years
2008 $140 a barrel
2009 $35 a barrel
– between $125 - $135 a barrel
between $25 - $50 a barrel
Now … climbing again
This wide (in terms of time) and steep (in terms of price) fluctuation has created ‘havoc’ with certain emerging economies ability to pay debt
This has lead to emerging country/company credit failure
So, not true corporate failure but something very similar