For a number of years, trade-credit insurance has been a lucrative business – but all of that may be changing. Insurers that underwrite trade-credit risks are bracing for a complex set of claims tied to the collapse of First Brands Group, the U.S. auto-parts supplier whose working-capital machinery relied on the steady packaging and resale of invoices. The episode is rapidly becoming a test of how well policy wordings hold up when a marquee insolvency collides with multi-layered, off-balance-sheet finance.
According to reporting in the Financial Times, Allianz, Coface and AIG were among carriers that provided cover to trading partners and investors exposed to First Brands’ receivables programs. 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.”
The plumbing of the case matters. First Brands made extensive use of invoice financing – selling customer receivables for cash while third-party investors financed its own payables to suppliers. That structure has proliferated as lenders and funds look for short-dated, asset-backed exposure that can be hedged with insurance. The FT reports that Point Bonita Capital, a fund managed by Jefferies, disclosed $715 million of receivables tied to First Brands and previously told investors that roughly 20 percent of a $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 tallies can evolve into drawn-out legal disputes—particularly over what a policy requires the insured to know, disclose or warrant. The industry still carries scars from Greensill Capital’s 2021 implosion, which set off years of litigation and coverage fights involving carriers that backed receivables-based lending.
On that front, wording will decide the size and speed of any payout. Many policies only allow an insurer to void coverage for fraud – First Brands has not been accused of fraud – if the insurer can prove the policyholder knew of the misconduct and failed to disclose it or misrepresented facts. Some forms even specify which executives must have made a misstatement for cover to fall away, and certain contracts still pay where a “rogue employee” is involved. Precedent cuts both ways: after Parmalat’s collapse in 2003, insurers paid out substantial claims when they could not show banks’ knowledge of the fraud.
The Justice Department has opened an inquiry into First Brands’ downfall, according to the FT, although the review remains at an early, fact-finding stage. Any regulatory attention to the mechanics of invoice finance – and the layering of insurance 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 notifications, the immediate work is forensic: tracing receivables sold into multiple programs; checking whether any invoices traded more than once; validating cancellation rights versus non-cancelable limits; and aligning lender endorsements with notice and claims-control provisions. Even if aggregate loss experience remains manageable, the administrative burden—and the risk of wording mismatches across layered programs—will be meaningful.
Recent profitability offers a 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 – considerably below expense and loss levels in many property-casualty lines. That history, however, does not pre-ordain outcomes in a case where documentation, notice obligations and knowledge qualifiers may be contested buyer by buyer.
Market confidence could hinge on what happens next. Bos Smith, a 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.”
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 reading of whose knowledge counts under the policy and whether disclosures met form.
Program mapping: Precise 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 poised 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.
Trade credit insurance profitability: strong core, thinning cushion
After several unusually calm years, trade-credit insurance is still posting the kind of numbers that make multiline carriers envious. Recent disclosures show loss and expense performance that many P&C lines would struggle to match: Atradius reported a 2023 gross claims ratio of 39.4% and a gross combined ratio of 75.2%; Allianz Trade (Euler Hermes) cited an improved combined ratio of 78.7% in the second quarter of 2023; and Coface, reporting under IFRS 17, recorded a 2023 net loss ratio of 37.7% and a net combined ratio of 64.3%. For underwriters and brokers, those figures explain why receivables cover has been treated as a margin-accretive niche.
The backdrop, however, is shifting. Insurers’ own macro research points to another stretch of elevated corporate failures – roughly a 10% rise in 2024 and a further 6% in 2025 – conditions that typically translate into higher claim frequency and fatter severities in credit lines. Pricing has not fully kept pace. Coface flagged a slightly negative price effect in 2023 (-1.9%) as markets normalized from the ultra-benign loss years, a late-cycle headwind if claims intensity accelerates faster than rate.
Reinsurance and accounting will also color the earnings path. Credit insurers remain sensitive to reinsurance commissions and acquisition costs, with Coface highlighting that high commissions helped anchor its net cost ratio at 26.6% under IFRS 17. The new accounting regime is no profit engine, but it does alter presentation and timing – complicating year-over-year comparisons just as loss activity returns toward historical norms.
And then there is legal friction – the profitability swing factor that rarely shows up in headline ratios until it does. Post-Greensill litigation underscored how multi-year disputes over policy wording can drag on cash flows and ultimate loss picks even when reported loss ratios appear contained. Recent actions involving brokers and carriers suggest that credit insurance used to support supply-chain finance can yield slow-burn claim resolution, especially if documentation gaps emerge as insolvency waves test program design.
Bottom line: core underwriting remains solid, but the cushion is thinner. Rising insolvencies, lingering price pressure in some pockets, dependence on reinsurance economics and the ever-present risk of wording disputes are the variables to watch for 2024-2026 results.
