|Dear Credit Insurance Colleague
Welcome to issue 11 of Credit Insurance News Digest: 4 -18 October.
This issue is kindly sponsored by UK Export Finance.
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Credit Insurance News
Berne Union reports that credit insurers support the real economy. The latest results from the Berne Union show that in the first half of 2012, members of the Berne Union indemnified US$ 2 billion to exporters, protecting them from losses suffered due to buyer defaults in all regions of the world. For insurance of trade transactions with payment terms of typically 30 to 90 days, members increased levels of support in the first half of 2012, maintaining a level matching the pre-crisis levels. Credit insurance capacity remains steady at just over US$ 900 billion at the end of the first half 2012, a level similar to pre-crisis. To view the Berne Union's press release go to http://www.berneunion.org/press-releases.html.
The official launch of Euler Hermes XoL (EH XoL) is due to take place on October 25. The core product is Excess of Loss with non cancellable Credit and Country Limits, Group Buyer Limits and high Discretionary Limits. As well as servicing clients who require an XoL solution, the City based team will also focus on Captive solutions, Policies in support of client’s ﬁnancing and Trade Credit based Single Risks. Where there is a need for capacity to be secured across multiple insurers, EH XoL will be able to syndicate on portfolios. Nicolas Delzant CEO World Agency comments: “The launch of XoL is Euler Hermes’ response to a growing demand from larger companies to see their investment in Credit Management truly rewarded.” For more information, contact Alexia.Parmentier@eulerhermes.com.
CIFS purchased by Nexus. Nexus Underwriting Management Limited has announced the purchase of the Trade Credit Insurance Division (CIFS) from Novae Syndicates Limited. Nexus will form a new Managing General Agency which will continue to trade under the CIFS name, with underwriting capacity provided by Novae Syndicate 2007 and other Lloyd's Syndicates. CIFS will continue to be led by Bob Lilley, Sue Morley and Neil Payton. Nexus Group CEO, Colin Thompson, commented "CIFS has been established for well over a decade and is a highly regarded franchise that fits our Group model of underwriting profitable specialty classes." Nexus is a private equity backed MGA underwriting Specialty classes of business. On a pro forma basis, the Group manages in excess of US$100 million of Gross Written Premium through its operating subsidiaries and has quickly established itself as a leading Specialty MGA. For more information go to http://creditindemnity.com/cifs-news/all/cifs-moves-to-nexus.
Equinox Global increases available capacity by more than 30%. Equinox Global, the Lloyd’s coverholder specialising in trade credit, has announced that it has increased its available capacity to underwrite by more than 30%. Equinox Global’s carrier panel comprises of Lloyd’s syndicates Aspen, Beazley and Pembroke each providing $12 million, $13 million and $5 million capacity respectively, giving Equinox Global the delegated capacity to underwrite $30 million per buyer - with greater capacity possible by special acceptance. Mike Holley, Chief Executive Officer of Equinox Global commented: “Businesses need trade credit insurance that they can rely on and that they can be confident will always be able to support them."
Euler Hermes launches a multi-channel campaign to warn SMEs of the hidden threat of bad debt. Features Exec Media Database has published an article, 'One secures Euler Hermes account,' (5 October) which advises that Euler Hermes UK has appointed One Marketing Communications to work on its marketing strategy, starting with a multi-channel campaign warning the SME market of the hidden threat of bad credit. One will also be promoting broker services, customer loyalty and retention. To view the article on Features Exec Media Database go to http://www.featuresexec.com/bulletin/news_article.php?id=17948#.UHfvyFGafC4.
Northern companies remain more vulnerable to failure, according to Euler Hermes. Business Money News has published an article, 'Northern firms bearing brunt of corporate insolvencies,' (October 12) which advises that firms in the north of England are still more likely to fail than their southern counterparts. According to a report from Euler Hermes, no fewer than eight of the top 10 hot spots for insolvency are in the north of the country, with the top spot occupied by Darlington which has an insolvency rate (year-to-date) of 1.68% – almost double the rate of its nearest competitor, Manchester (0.87%). To view the full article on Business Money News' website go to http://businessmoneynews.net/index.asp?ItemID=1831&rcid=75&pcid=69&cid=75.
Atradius discusses how businesses can take advantage of burgeoning export opportunities. Insider News has published an article, 'Business Matters: Exporting our way to economic excellence,' (4 October) in which Marc Jones, head of sales at Atradius UK & Ireland, discusses how credit insurers' knowledge helps businesses trade with confidence on an international stage and to overcome some of their biggest hurdles. He concludes that it’s time for businesses 'to get some support in identifying the right risks, grasp the nettle and to go for it.' To view the article on Insider News' website go to http://www.insidermedia.com/insider/national/78027-business-matters-exporting-our-way-economic-excellence/index.html.
Atradius advises that few Irish businesses seem to be really exploiting some of the export support available to them. Business & Leadership has published an article, 'Managed credit – your secret export weapon,' (11 October) in which Stuart Ramsden, country manager, Atradius Ireland, explains the importance of managing credit risks when doing business abroad. Mr Ramsden also advises that fewer than a quarter of Irish businesses make use of trade credit insurance, and examines what makes it so vital for Irish exporters. To view the full article on Business & Leadership's website go to http://www.businessandleadership.com/exporting/item/37613-top250exp/.
Coface has announced that it is extending its offering in Western and Central Africa to companies in Ghana, Ivory Coast and Senegal. In Ivory Coast and Senegal, Coface has concluded a technical partnership agreement with Axa, which will give companies in these two countries access to Coface’s credit insurance services, analysis of country, sector and credit risks, as well as protection from the risk of financial default of their clients. In Ghana, Coface opened its 9th branch in the region and has signed a technical partnership agreement with Activa International Assurances Ghana, a member of the ‘Globus’ network of African insurers. To view the news release on Coface's website go to http://www.coface.com/CofacePortal/COM_en_EN/pages/home/Who_we_are/News?news=121009en.
Aon Trade Credit stresses that having the necessary intelligence and local knowledge is crucial when assessing overseas trade risks. Insider News North East has published an article, 'Talking Point: Exposure to risks abroad threatens balance sheets at home,' (4 October) in which Charles Arbuthnott, branch director of Aon Trade Credit in Glasgow discusses overseas trade credit risks. Mr Arbuthnott stresses that by outsourcing their risk assessment companies can obtain the necessary intelligence and local knowledge to lessen their company’s exposure to risk wherever it is trading, as well as ensure that Trade Credit agreements are robust. To view the article on Insider News' website go to http://www.insidermedia.com/insider/north-east/77998-talking-point-exposure-risks-abroad-threatens-balance-sheets-home/index.html.
QBE announces partnership with the Institute of Risk Management. QBE has announced that it has entered into a partnership agreement with the Institute of Risk Management (IRM) involving sponsorship of the Risk Leaders Conference, Professional Development Forum and Special Interest Groups. David Draper, Director of Client Management at QBE, said: "The scope and diversity within the IRM allows us the opportunity to engage with company directors and business leaders across all sectors. We hope that this will enable us to develop a greater understanding of emerging issues that differing types of businesses are facing and where our experience and insight might be able to help and add further value." To view QBE's press release go to http://www.qbeeurope.com/news/2012-archive.asp.
Coface warns that South African construction faces an uphill battle. BDLive has published an article, 'Construction faces ‘uphill battle’ next year on 7% costs rise,' (4 October), which reports that Coface estimates that South African construction costs will rise 7% next year, which means the industry will need to grow above this figure to show any improvement. However, Coface feels that this is unlikely, and that the sector faces an uphill battle. To view the full article on BDLive's website go to http://www.bdlive.co.za/business/industrials/2012/10/04/construction-faces-uphill-battle-next-year-on-7-costs-rise.
EFCIS acquires niche commercial credit management consultancy business Demergo. Credit insurance broker EFCIS has announced that it has acquired commercial credit management consultancy business Demergo. The acquisition follows the successful launch of the AccountSure credit management product as a joint venture between the two companies in 2011. Demergo will re-brand as EFCIS Credit Management and provide non-regulated services to EFCIS clients in the UK and 29 other countries via the International Credit Brokers' Alliance (ICBA).
Oval has launched a new website. To view, go to http://www.theovalgroup.com/.
New Reports and Video Clips
A.M. Best advises that the trade credit insurance industry is stabilising. A.M. Best Co.’s latest video episode of 'First Monday' features a section in which Carlos Wong-Fupuy, senior director of analytics for A.M. Best Europe – Rating Services Ltd, examines stabilising conditions in the trade credit insurance industry and advises that the industry is now rebounding moderately . To view the clip, go to http://www.ambest.com/v.asp?v=fmwongfupuy1012.
Coface reports that German companies are more resistant than French ones, but for how long? Coface has published its latest Panorama Autumn 2012, 'France-Germany: comparative analysis of company insolvencies.' The report advises that the rate of insolvencies for French companies is nearly twice as high as that of German ones, and that German companies show strong resilience thanks to their robust financial health. However, the cost of insolvencies is higher in Germany than in France. To view Coface's press release go to http://www.coface.com/CofacePortal/COM_en_EN/pages/home/Who_we_are/News?news=121011.
Ducroire|Delcredere reports that Turkey's economic indicators show a much sounder picture now than they did only a decade ago. Ducroire|Delcredere has published its latest, 'Country Risk Assessment – Turkey,' which advises that over the past decade, the Turkish economy has undergone an important transformation. To view the assessment or its executive summary, or see at-a-glance facts and figures, pros and cons etc., go to http://www.ducroiredelcredere.co.uk/WebDucDel/Website.nsf/HomePageEn%28Visitor%29?OpenForm.
Dan North of Euler Hermes ACI advises that U.S. job creation needs to double. A video clip in which Euler Hermes ACI's chief economist, Dan North, discusses the U.S. September jobs preview and the unemployment rate on Yahoo Finance's 'Breakout' is now available to view on Euler Hermes ACI's website - http://www.eulerhermes.us/en/economists-corner/economists-corner.html.
Additional recommended reports:
Hiscox report on entrepreneurs in 2012 finds that they may be losing sleep, but not hope. A report published by Hiscox, 'The 2012 DNA of an entrepreneur survey,' paints a revealing portrait of 3000 SMEs in the UK, the U.S., the Netherlands, Germany, France and Spain as they cope with another year of economic crisis. The report found that 48% of respondents were optimistic about the year ahead for their business, while 27% were pessimistic and 26% were not sure. The Spanish (28%) had the lowest optimism, and the Dutch (61%) the highest. In addition, in five out of six countries respondents reported an increase in new customers, and 45% of SMEs overall reported profit growth over the last 12 months. For more information and to download a copy of the report go to http://www.hiscox.co.uk/press-room/features/hiscox-dna-of-an-entrepreneur/.
London takes top accolade in annual global PwC study of major finance capitals. London has climbed four places from sixth last year to rank top in a virtual tie with New York in the fifth edition of 'Cities of Opportunity,' a major global study released by PwC. The annual report, which analyses of the development of 27 global cities, finds that London finishes in a virtual tie for first place overall this year, one point behind New York, and ahead of Toronto, Paris, and Stockholm. Overall, the British capital ranks in the top ten in all but two indicators; it also finishes in the top five in over a third of the variables and in the top ten in nearly two-thirds, ranking first in an impressive six variables. For further information and to download a copy of the report go to http://www.pwc.co.uk/economic-services/publications/cities-of-opportunity-2012-london.jhtml.
BDO reports £10 billion growth across the UK's Central South's top 150 companies. BDO have published a new report, 'The Central South Report,' which advises that the UK's Central South's top 150 companies have increased revenues to £75 billion - a £10 billion jump from £64.2 billion last year. However, profits across the top 150 have dipped slightly to £3.8 billion from £4.1 billion, proving that margins are still being squeezed across the board. To download the report from BDO's website go to http://www.bdo.uk.com/press/10bn-growth-across-central. A link to the full report is given at the end of the press release.
IMF reports that the global economy has deteriorated over the last quarter. The IMF has published its latest 2012 World Economic Outlook (WEO), 'Coping with High Debt and Sluggish Growth,' which assesses the prospects for the global recovery in light of such risks as the ongoing euro area crisis and the 'fiscal cliff' facing U.S. policymakers. The report also advises that amidst a deteriorating global economy both the UK and US are "notable" disappointments. The full report can be downloaded from the IMF's website at http://www.imf.org/external/pubs/ft/weo/2012/02/index.htm. A webcast of the IMF's press conference at the launch of the WEO is also available to view from this webage.
Economic growth in the UK remains weak. The British Chambers of Commerce (BCC) has published a new 'Quarterly Economic Survey,' which shows that economic growth in the UK remains weak, with the Q3 results slightly worse than the previous quarter. While the report does not agree with the ONS’ gloomy estimation that the UK was in technical recession for three consecutive quarters, it does find that the economy is stagnant. To download a copy from the BCC's website go to http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/quarterly-economic-survey-q3-2012.html.
Deloitte reports that 90% of CFOs in the UK rate the economic uncertainties facing their business as being above normal. The latest 'Deloitte CFO Survey: 2012 Q3,' results have now been published. Although the report shows a rebound in confidence after record Q2 decline, it also cautions that finance chiefs see a 43% probability of the UK recession continuing or recurring within the next two years. In addition, 27% of CFOs expect one or more countries to leave the euro within next 12 months. To download a copy of the report go to http://www.deloitte.com/view/en_GB/uk/research-and-intelligence/deloitte-research-uk/the-deloitte-cfo-survey/index.htm
Business Development Director to join a team of 5. As a result of growth, a leading Insurance Broker with interests throughout the world is looking for a Business Development Director to join a team of 5 across the UK. This international role will cover London and the South East, dealing with FTSE 500 clients headquartered in London as well as some local business. With an annual target of £150k (average brokerage ~£25k) you will be expected to develop business both using extensive leads from the large multinational and your own business development. The ideal candidate will have a proven track record in winning Trade Credit Insurance business in a large multinational broker working with FTSE 500 clients, and a team player. In return, the successful candidate will have a £45-55k basic salary with commission of 10% on sales, company car and a 12.5% non contributory pension. If you think you are appropriate, please forward your CV to firstname.lastname@example.org
. Please quote Credit Insurance News Digest if applying.
During July, the Digest noted that the UK construction industry was experiencing a confluence of issues - a waning pipeline resulting from cancelled construction projects, decreasing profit margins and lengthening payment periods – which painted a bleak short-term outlook for the industry. This prompted some of the heads of the country's biggest building groups to join together to publish an open letter in The Daily Telegraph on 11 July, which called on the Government to use the construction industry to stimulate the economy. In tandem, a campaign, 'Creating Britain's Future,' was launched to promote the industry and a short video produced (see YouTube http://youtu.be/EIjY3pFd8l4). Days later, the Government unveiled initiatives, including its 'UK Guarantees' scheme – a plan to use the strength of the UK's public-sector balance sheet to accelerate major infrastructure projects that have stalled, with up to £40 billion to be unlocked to benefit nationally-significant projects. An additional one-year temporary lending programme worth £6 billion, designed for smaller public-private infrastructure projects that might otherwise get delayed, as well as £5 billion long-term support for British exporters were also announced.
Now, just three months later, it is still too early to say whether the initiatives announced in July are likely to have a significant positive impact in 2013 and beyond, although there is a good deal of industry skepticism that enough has yet been done. For example, the Infrastructure Alliance is currently promoting an action plan to boost Britain’s infrastructure sector* advising, in the words of Nick Baveystock, Director General of the Institution of Civil Engineers that some 'big, bold and brave steps'** need to be taken by the Government. That said, some positive news emerged recently with the announcement that Crossrail’s £1 billion rolling stock was confirmed as the first scheme to receive support through the UK Guarantees initiative - with £240 million against private investment promised. The Thames Tideway tunnel has also been tipped as a likely recipient in the near future, with more deals reputedly in the pipeline.
However, despite these isolated instances of good news, the evidence that the industry as a whole is more in the doldrums than ever is incontrovertible; with some information sources having recently reported their worst industry statistics since the height of the recession and all commentators and reports/surveys, somewhat rarely, in agreement with each other about the current state of the sector. As we now head into the Winter months, when construction activity tends to slowdown, the outlook for the next few months is especially depressed.
Some current hard data from various sources is given below:
* The Infrastructure Alliance brings together four major industry groups: Association for Consultancy and Engineering, Civil Engineering Contractors Association, Construction Products Association, Institution of Civil Engineers. The Alliance’s report. entitled, 'Avoiding the Infrastructure Crunch: Getting Britain working,' has called for immediate action to stimulate ‘shovel-ready’ maintenance and minor works.
** As quoted in New Civil Engineer, 'Engineers urge action after MPs cast doubts on infrastructure delivery,' (3 October).
Contractions to construction activity. The Office for National Statistics (ONS) recently reported that UK activity was 11.6% lower in August 2012 compared with the same month a year ago; when comparing the quarter from June to August 2012 with the same quarter in 2011, the volume of construction output had decreased by 11.9%.
In September Markit/CIPS Construction Purchasing Managers’ Index posted a mark of 49.5, which - for the second month running - was below the 50.0 score that separates growth from contraction. This was the first back-to-back sub-50 reading since the start of 2010, and significantly lower than the Index’s long-run series average of 54.2.
Reduced profitability. According to Glenigan, median profitability in the construction industry has fallen to 2.7% - in contrast to the 5% recorded in 2011 and 9.9% recorded in 2009 - the lowest level since the survey began. Anecdotal evidence, published in Construction Enquirer, also suggests that as many as 90% of contractors are facing competitors prepared to bid below cost to secure business.
The public industry sector suffering the most. Glenigan noted that the trend of recent years for private sector work to buoy up the waning public sector does not seem to be the case at the moment. According to the ONS, the public sector was the worst affected: the volume of new public housing work decreased by 20.%, new infrastructure decreased by 18.4% and new public non-housing (excluding infrastructure) decreased by 21.9%.
Poor results for SMEs across all sectors. The Federation of Master Builders (FMB), 'State of Trade Survey,' which looks at construction SMEs, reveals that workloads in the SME construction sector have declined across all sectors. 39% of respondents to the FMB survey reported a decline in private new house building workloads in the third quarter of the year, and 40% predict a further decline in the last three months of this year.
A poor outlook for the Industry until 2014. According to the Construction Products Association (CPA), 'Construction Industry Forecasts,' construction output is forecast to fall by 6.3% this year and a further 1.4% in 2013, before a return to growth in 2014. This is a reduction of almost £8.5 billion of construction activity over two years. Markit/CIPS UK Construction PMI also advised that confidence in the business outlook was much lower than at any time prior to mid-2008.
An industry suffering from high comparative levels of insolvency. Although recent research from PricewaterhouseCoopers indicates that the number of construction companies becoming insolvent has dropped from 749 in Q1 201 to 656 in Q2 and 631 in Q3, construction remains ones of the sectors hardest hit by insolvencies. More than 6,000 construction companies have now failed during the last two years.
Glenigan Constructing Insight - report 9 October 2012, 'Construction KPI Report 2012.'
Glenigan Constructing Insight - report 15 October 2012, 'Glenigan Index, October 2012.'
Construction Products Association – report 15 October 2012, 'Contraction Increases for Construction Output - Forecasts Autumn 2012.'
Markit/CIPS UK Construction PMI, news release 2 October 2012.
ONS - news release 12 October 2012, 'Output in the Construction Industry - August 2012.'
Federation of Master Builders - news release 15 October 2012, 'House Building Slump Continues, warns Federation of Master Builders.'
Construction Enquirer - article 16 October, 'Nearly 90% of contractors hit by suicide bids.'
Who's UP/Who's DOWN
UP: Waitrose, Sainsbury's and Aldi marketshares. According to latest figures from Kantar Worldpanel, Waitrose achieved its highest ever marketshare of 4.7% in the 12 weeks ended September 30th 2012. In the three months to 2 October, Sainsbury's also boosted its share of the market from 16.2% for the equivalent period last year to 16.5%. Although not yet in the premier league of UK supermarkets. Aldi also continued its successful run - achieving its highest ever marketshare at 2.9%.
UP: Bellway, the house builder, has announced that for the 12 months to July 31, its total group turnover was £1,004.2 million - compared to £886.1 million in 2011 - and its pre-tax profit was up 57% to £105.3 million. These impressive results were driven by the increasing proportion of completions from sites the company had purchased cheaply during the recession, as well as a 6.3% increase in the price of the average house sold - now £186,648.
UP: Asda has announced a pre-tax profit of £506.9 million, compared to £491.8 million last year - despite making a substantial loss following its acquisition of Netto stores (store refurbishment programme and Netto's operating loss of £31.4 million). In the 12 months to the end of December 2011, operating profit increased by 9.2% to £463.3 million, while sales grew 5.5% to £21.7 billion. Like-for-like sales were up 0.5%.
UP: Ted Baker has announced a 10.4% increase to £9.4 million in its pre-tax profits for the first half year. Total revenues rose by 15.4% to £118.6 million: UK and European retail sales increased by 7.9% to £74.7 million, U.S. retail sales grew by 53.3% to £15.8 million, rest of the world sales increased by 58.1% to £2.8 million.
UP: Halfords has reported that its like-for-like cycling sales increased by 14.7% in the three months ending September 28th 2012 - at least in part due to the successes of Bradley Wiggins and the British cycling team in th Tour de France and Olympics. Halfords Autocentres also recorded a 19.9% increase in total sales, while online sales grew by 30% over the period. Halfords now anticipates group profit before tax of between £40 million and £42 million for the first half.
UP: Samsung Electronics has reported that its operating profits rose by 90% to £4.5 billion in the last quarter, primarily as the result of strong sales of Galaxy smartphones. However, most analysts now expect Samsung's run of four straight record quarters to end in the next quarter due to a combination of one-off expenses and a likely pay-out to Apple of more than US$1 billion for patent infringements - currently being appealed.
UP: JP Morgan Chase & Co has announced record quarterly profits - up 34% from a year earlier. Low interest rates and a recovering housing market in the U.S., helped mortgage lending increase by 36% to U.S.$1.8 billion. Wells Fargo & Co. also reported a 22% in third quarter profit due to a more than 50% increase to U.S.$2.8 billion in mortgage banking revenue.
DOWN: Recruitment firm Michael Page International has warned that its full-year operating profits will miss expectations and has reported an 11.3% decline to £126.5 million for its pre-tax profits in the three months to mid-September compared to a year earlier. The firm saw the biggest fall in profits in Europe, Middle East and Africa (EMEA), which represents nearly 40% of the company's profits.
DOWN: After struggling for many years and agreeing a CVA in April 2011, Uniglaze has called in administrators KPMG to try to sell it as going concern - although KPMG has described the chance of a potential buyer coming forward as 'remote'. The company has a turnover of about £21 million
DOWN: United Carpets has just undergone a pre-pack, in which its trading arm was placed briefly in administration before, shortly afterwards, buying the subsidiary back out of administration. This controversial move has allowed the company to renege on its former rental agreements and seek better terms, as well as divest itself of debts connected to the subsidiary. Similarly, after recently putting a subsidiary with 83 sites into administration, Optical Express has attracted some fierce criticism by controversially taking the step of buying back around half the practices.
Global companies issuing profit warnings in the last week include: engineering firm GKN, industrial group Morgan Crucible company, telecom equipment maker ZTE, personal finance website operator Bankrate Inc, Nokian Tyres, own-brand cleaning products Manufacturer McBride, Advanced Micro Devices (AMD), logistics firm Panalpina, technology distributor Avnet, Oil and gas giant Chevron Corp.
About this issue's sponsor: UK Export Finance
UK Export Finance is the UK’s export credit agency, and it acts as a state credit insurer to support UK exporters when they are unable to obtain cover from the private market. In 2011 it widened its credit insurance policy to enable it to offer support for all types of goods and services.
Under this revised policy, UK Export Finance has supported exports to a number of countries including Libya, where it was the first major export credit agency to come back on cover, and Greece where the private market is not currently offering support.
UK Export Finance is able to accept applications either directly or via an insurance broker who will be able to provide more information on the details of the cover UK Export Finance provides. For more information please click the logo above.
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