For several years, trade-credit insurance has been one of the more profitable niches in commercial underwriting — but that run may be coming to an end.
Carriers that insure trade-credit risks are bracing for a complex web of claims tied to the collapse of First Brands Group, a U.S. auto-parts supplier whose business relied heavily on the packaging and resale of invoices. The fallout is shaping up to be a test of how well policy wordings hold when a major insolvency collides with the layered financing structures that underpin global supply chains.
According to reporting in the Financial Times, Allianz, Coface and AIG were among the carriers that provided coverage to trading partners and investors exposed to First Brands’ receivables programmes. Senior executives at several large credit insurers told the paper they had already reduced cover on risks linked to the company ahead of its filing. One trade-finance fund manager, also cited by the FT, said an insurer began cutting limits almost a year earlier after spotting payment frictions at a subsidiary: “The insurers always know first.”
While the fallout from First Brands’ bankruptcy is centred in the U.S., Canadian firms and underwriters are paying close attention. The trade-credit ecosystem that underpins international commerce is deeply interconnected, and shifts in American tariff policy could yet reverberate north.
However, Canadian companies may be slightly better positioned to withstand that turbulence. Speaking previously with Insurance Business, John Middleton, vice-president, complex risk, trade credit at HUB International, said that the Canada–U.S.–Mexico Agreement (CUSMA) offers Canadian exporters a limited buffer from some of the shocks currently affecting other markets.
“Canada’s got a bit of a leg up on the rest of the world, other than maybe Mexico, just because of the Canadian–U.S.–Mexican Free Trade Agreement,” Middleton said. The trilateral framework, he explained, has shielded Canadian exporters from some of the immediate impacts of U.S. tariff measures that have unsettled global supply chains.
That advantage, he added, is not permanent – CUSMA comes up for review in 2026 – but for now, Canadian businesses are using this window of relative stability to reinforce their credit-risk management strategies and reassess coverage needs.
Middleton noted that uncertainty in global trade has spurred stronger demand for trade credit insurance, which gives companies the confidence to expand while protecting receivables from counterparty default.
“It’s giving companies confidence to grow even as tariffs and trade policies remain unpredictable,” he said.
First Brands made extensive use of invoice financing — selling customer receivables for cash while third-party investors financed its payables to suppliers. That structure has proliferated as lenders and funds seek short-dated, asset-backed exposure that can be hedged with insurance.
The FT reports that Point Bonita Capital, a fund managed by Jefferies, disclosed US$715 million of receivables tied to First Brands and previously told investors that roughly 20 percent of a US$3 billion book of invoice- and inventory-linked debt was “hedged” through credit insurance and related products. Evolution Credit Partners also used credit insurance and, in 2021, hired former Coface executive Kerstin Braun as a managing director.
Insurers have sought to calm nerves, telling the FT that exposures connected to First Brands’ off-balance-sheet financing are not “material.” Yet veterans of the sector caution that initial loss estimates can evolve into protracted legal disputes — particularly over what a policy requires the insured to disclose or warrant.
The industry still bears scars from Greensill Capital’s 2021 implosion, which triggered years of litigation and coverage fights involving carriers that backed receivables-based lending.
Policy wording will ultimately determine the scope and timing of any payouts. Many policies only allow an insurer to void coverage for fraud — and only if the insurer can prove the policyholder knew of the misconduct and failed to disclose it. Some forms even specify which executives must have made a misstatement for coverage to lapse, while others still pay where a “rogue employee” is involved.
Precedent cuts both ways. After Parmalat’s 2003 collapse, insurers paid out significant claims when they could not show that banks had knowledge of the fraud.
The U.S. Department of Justice has opened an inquiry into First Brands’ downfall, according to the FT, though the review remains in an early, fact-finding stage. Any regulatory scrutiny of invoice-finance mechanics — and of the insurance layered over those assets — could influence underwriting standards for platforms that mediate between suppliers, buyers, lenders and capacity providers.
For insurance professionals now confronting renewals and potential claim notifications, the immediate work is forensic: tracing receivables sold into multiple programmes; checking whether any invoices traded more than once; validating cancellation rights versus non-cancellable limits; and aligning lender endorsements with notice and claims-control provisions.
Even if aggregate losses prove manageable, the administrative burden — and the risk of mismatched documentation across layered programmes — will be significant.
Recent profitability offers some cushion. Earnings disclosures indicate that carriers such as Coface and Atradius have in recent years paid roughly 40 cents in claims for every dollar of premium — well below loss levels in many property-casualty lines. That said, experts caution that benign loss ratios do not guarantee smooth outcomes in cases where knowledge qualifiers and documentation gaps may be contested, buyer by buyer.
Market confidence could hinge on what happens next. Bos Smith, portfolio manager at BroadRiver Asset Management, told the FT that the situation is “an important case study.”
“Given the high-profile nature of this bankruptcy, if credit insurance claims are paid without incident, the market will likely gain significant confidence in the product,” he said. “If they are not, many of us will be confronted with a concerning data point.”
What to watch
• Coverage reductions already taken: Early limit cuts suggest some carriers anticipated stress and may argue improved risk selection if claims arise.
• Knowledge and misrepresentation thresholds: Expect close scrutiny of whose knowledge counts under the policy and whether disclosures met form.
• Programme mapping: Detailed audit trails for receivable sales — especially where multiple vehicles were involved — will be central to adjusting any loss.
However the numbers shake out, First Brands is likely to influence how trade-credit capacity is allocated to receivables finance in the months ahead — and how tightly policy terms are drafted when insurance is used to backstop short-term corporate credit.
