insights april 2020 covid-19: how to maintain access to ... · reporting agencies, and global debt...
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INSIGHTS APRIL 2020
COVID-19: How to Maintain Access to Insurance and Credit Markets Amid the tragic human impact of COVID-19 and governments’ restrictions on travel and commerce, businesses are feeling the economic consequences of the pandemic. Companies must prepare to respond to and recover from the impact to their people, operations, and business as any delay could bring significant consequences.
The pandemic has reshaped the risk landscape, and many
companies feel uncertain about their coverages and the
insurance and credit markets, where trade credit insurance (TCI)
and surety are critically important.
Notifications of overdue payments have increased sharply, as
has the number of claims. Trade credit insurers and sureties
expect increased claims activity, particularly in industries such
as transportation and travel, hospitality (hotels, restaurants, and
entertainment), oil and gas, and non-food and beverage retailers.
While the TCI market is taking a cautious approach, the
insurance solutions remain accessible in many situations. Some
markets have proactively extended notice periods related to
cancellations, premium levels, and/or non-cancellable limits,
providing much needed relief to insureds.
Surety underwriters are also taking a conservative approach.
While they have not placed strict moratoriums on specific
industry sectors, geographies, or specific applications, they are
taking the expected precautions to limit exposures and minimise
potential losses.
TCI and surety are among the many ways companies maintain
access to capital, distribute risk, and obtain third-party support
for their business operations.
In order to maintain access to capital, we recommend that
companies proactively:
1. Understand, assess, and manage your profile
and relationships.
2. Communicate more with key financial stakeholders.
3. Explore alternative financing solutions.
2 • COVID-19: How to Maintain Access to Insurance and Credit Markets
Manage your Profile and RelationshipsUnderstanding your credit profile (for example, how your firm is
viewed by credit markets) and soliciting a third-party assessment
of your rating can help. In some countries, government agencies
(the German Bundesbank, for example) provide a free credit
analysis, credit rating, and certificate. Other potential sources of
credit assessments include banks, commercial credit insurers,
and credit agencies.
When requesting an independent credit-rating assessment, it is
worth obtaining a three-year trend. This can help in negotiations
with customers and suppliers when discussing payment terms
and adequate collateral. The credit assessment should not be
limited to your own liquidity situation, but also extend to the
viability of key suppliers and receivables.
In addition to monitoring your own working capital figures, try
to analyse the financial strength of all counterparties to try and
mitigate insolvency situations. Various sources can help with this,
including insurance brokers, commercial credit insurers, credit-
reporting agencies, and global debt collection agencies.
Credit-related defaults can negatively affect your supply chain.
Proactively identifying alternative sources of supply, in advance
of such issues, will allow you to adapt operations quickly if there
is a sudden deterioration in creditworthiness.
Communicate With Financial StakeholdersSuppliers, trade credit insurers, guarantee providers, and
financiers are seeking information from clients to assist them in
assessing COVID-19’s impact.
The more proactively you provide them with the information they
require to evaluate the health of your business, customers, and
suppliers, the more able they will be to maintain support.
It is particularly important to be proactive, transparent,
and communicative with trade credit and surety insurers
to build and reinforce their trust in your firm’s ability to
successfully navigate this unprecedented event. Such insurers
are likely to be as critical to your operations as your banks
or other lenders and debt holders.
Their decisions are based on the information made available to
them. In the absence of credible information, they are forced
to make assumptions that may not work in your favour. For
example, they may take decisions that reduce or limit cover or
support. This could negatively affect cash flow just as suppliers
demand cash or shortened payment terms, precisely at the time
you need more financial liquidity and/or access to third-party
guarantees to support your business.
Underwriters will want to understand your strategy for managing
challenges and the suppliers critical to you in the near term. From
a TCI perspective, prioritising your key suppliers and identifying
which ones to insure and, where possible, and with which insurer,
will enable you to reach out to the appropriate underwriter.
While you may be selective in the information you share, these
stakeholders will seek answers to the following questions,
so they should form the basis of any assessment of your own
business as well as businesses in your supply chain:
• What is COVID-19’s impact on your business?
• What measures have you taken to manage and mitigate the
impact?
• What do your quarterly financial accounts and forecasts for
2020 look like? What is your liquidity forecast? Focusing on
the short-term (next three months) and medium-term (4-12
months).
• Which bank lines are accessible? What is the utilisation of these
bank lines? Consider when your bank lines are up for refinancing
– if this is less than six months, stakeholders will want to know
where you are in the process and what your strategy is to
refinance. It is important to know your covenants, especially for
trade credit insurers, surety companies, and banks.
• To what extent has your supply chain been interrupted? How
long is the disruption likely to last? How long will it take to
reactivate your supply chain? When will essential products or
materials be delivered following the restart of suppliers? Have
you investigated possible alternative suppliers?
• Which surety lines do you have and what is the current and
expected utilization? What are your anticipated needs?
Marsh JLT Specialty • 3
Explore Alternative Financing Solutions Given recent increases in notifications of overdue payments and
the number of claims, trade credit insurers, sureties, factoring
companies, and banks may seek to reduce exposures or to
protect against losses.
Different insurers are reviewing their exposures within
certain industry segments and/or countries where they have
material exposure. If your business is negatively impacted
by changes in coverage or support, there are ways to extend
coverage or to solidify surety facilities support for your
company’s continued access to capital. A number of options
can be explored, including:
• Trade credit top-up cover.
• Receivables financing through factoring.
• Surety capacity to replace bank guarantees or enhance
optionality.
Marsh JLT Specialty’s Credit Specialties team is here to help you
explore options and resolve these challenges. We will work with
you to help develop strategies to maintain your operations and
benefit from improved conditions later on.
Different insurers are reviewing their exposures within certain industry segments and/or countries where they have material exposure.
For more information, please contact your usual Mash JLT Specialty representative.
DIRK SIEBENSManager Credit Specialty+32 (0)474 81 54 [email protected]
DAVY BAUWENSSenior Client Advisor Credit Specialty+32 (0)492 56 56 [email protected]
ADAM BRISESenior Client Advisor Credit Specialty+32 (0)471 80 61 [email protected]
MARLEEN DE WITClient Advisor Credit Specialty+32 (0)471 56 44 [email protected]
JOELLE DEMEUSClient Advisor Credit Specialty+32 (0)471 20 71 [email protected]
BRECHT DE RIJCKClient Advisor Credit Specialty+32 (0)472 96 81 [email protected]
ARTHUR DEROMBusiness Developer Credit Specialty+32 (0)478 66 34 [email protected]
MARIJKE HAELTERMANClient Advisor Credit Specialty+32 (0)470 23 04 [email protected]
VINCENT HENDERICKClient Advisor Credit Specialty+32 (0)478 50 42 [email protected]
JONAS PRIAUClient Advisor Credit Specialty+32 (0)471 80 39 [email protected]
ELKE SOETENSClient Advisor Credit Specialty+32 (0)478 40 85 [email protected]
JAN VAN HOEYWEGENSenior Client Advisor Credit Specialty+32 (0)470 90 04 [email protected]
GERT-JAN VANDENDRIESSCHEClient Advisor Credit Specialty+32 (0)478 25 09 [email protected]
DESIREE VERHELSTSenior Client Advisor Credit Specialty+32 (0)3 393 05 [email protected]
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