Analysts at Moody’s Investors Service anticipate that trade credit insurers will maintain strong underwriting discipline in 2024, supported by robust financial reserves, despite an increase in insolvencies and claims resulting from a global economic downturn.
Moody’s observes a persistent increase in corporate defaults in early 2024, which is expected to lead to a rise in credit insurance claims and loss ratios. Additionally, the slowing economy and reduced trade volumes are impacting insurers’ revenue growth after two years of strong expansion.
Analysts explain, “Contrary to previous cycles, credit insurance prices have only fallen moderately in the last two years, despite a low level of claims.” Insurers are maintaining good pricing and underwriting discipline, with credit quality remaining relatively high, although gradually decreasing.
Insurers have bolstered reserves during years of moderate claims, providing a buffer against potential claim increases. While some reserves may be affected by accounting changes, the industry’s overall capitalisation remains strong.
Moody’s further highlights, “Finally, credit insurers renewed their reinsurance protection for 2024 at similar conditions to last year, further supporting the industry’s capacity to withstand higher claims.”
The rating agency identifies three major event risks for the trade credit insurance industry: escalating geopolitical tensions, a major cyberattack, and political or legislative constraints on credit insurers’ ability to reduce their exposures if necessary.
Regarding these risks, Moody’s states, “We estimate the probability of political/legislative constraints as low currently, while the likelihood of a cyberattack is hard to assess.”
