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Q3 Global Marketplace Insights – Financial Solutions

2023 Market Insights

October 17, 2023

Stuart Ashworth, Head of Broking and Market Engagement, Financial Solutions, discusses the current market conditions for trade credit insurance, non-payment insurance and political risk insurance.
Financial Solutions market trends

Hear from our experts and learn more about the latest insurance marketplace trends


Financial Solutions market trends

Welcome to WTW's Global Marketplace Insights series, where our experts bring you the latest risk and insurance perspectives.

Hello, I'm Stuart Ashworth, the Head of Working and Market Engagement for the Financial Solutions global line of business for WTW.

Financial Solutions is really the umbrella organization that houses a number of different product lines, notably trade credit insurance, non payment insurance and political risk insurance.

And we thought it was worthwhile to explore these independently and individually to see what's happening in the marketplace and think about what the future may hold.

Turning to the first of our products Trade Credit insurance, somewhat counter intuitively COVID actually saw a drop in the number of trade credit claims, but the frequency of claims has been ticking up recently and we now expected to get to pre COVID levels pretty sure pretty soon.

Now that said the claims that have come in have not been too severe with the exception of one large claim in Latin America.

So insurers continue to enjoy strong loss ratios. Ample capacity is still available in the marketplace and many insurers who recruiting talent which is a firm indication of the strength of the marketplace.

However, we think credit appetite is likely to contract in the second-half of 2023.

Booming weights have stabilized in most markets and we expect this trend to continue for the next few months.

This is being driven by strong competition for both new and renewal business, particularly in sectors which is seen as low risk such as pharmaceuticals or the food and beverage industry, but conversely industries which is seen as more challenging we're seeing a slowdown appetite such as construction or retail.

Once the market remains steady for traditional whole turnover insurance, we're seeing an increased demand for top up cover.

This is where additional coverage is being bought over and above what was being bought previously.

Now this has come about and been exacerbated by dual factors of an increase in global trade coupled with high inflation, which means that limits which were appropriate and sufficient six months ago are insufficient now.

But it's worth noting that specialist insurers are stepping into this marketplace and have responded by offering additional cover and support.

Looking to give clients advice? Our advice would be to explore the market and seek alternative indications at renewal.

The insurance appetite remains strong and competition is fierce, which means there may be alternatives to your incumbent insurer and it's always worth exploring.

Thinking about our next product line which is non payment insurance for banks.

Over the last 20 years, the insurance market has provided a channel large financial institutions to distribute risk.

Now financial institutions are particularly susceptible to macroeconomic trends.

A current interest rate environment is impacting lending and bank capital in different ways.

For example, some FIs who had modest manageable swap exposures and that far more exposed to credit risk than they were previously and therefore they're looking to lay this off into the insurance market.

There's also been increased interest around new Basel capital relief legislation and regulations which are being drafted and implemented in the United States.

Project finance remains one of the most active areas that we see and we expect that trend to continue, particularly given US infrastructure investments.

We also expect this to continue in Latin America as a sweep of new governments come into power looking to increase infrastructure spending and across parts of Asia.

Turning to Asia, we've seen a slowdown in transactions from China in light of wider economic challenges, but that's been balanced by an uptick in transactions that we're seeing coming out of India.

If we look at pricing, there is a geographical lens that we have to apply to this.

Turning to pricing, there is a geographical lens we need to apply.

Banks in the GB are fighting against market corrections which are being suggested by the insurers.

This is because an increased competition in the lending space looking for high quality investment grade assets.

If the bank's lending is cheaper, the insurance pricing has to also be cheaper.

In the US, rising interest rates are causing tighter insurance rates as it's hard for banks to significantly increase their lending rates in the current climate, whereas Asia seems to be more immune to these challenges.

Thinking about capacity, the insurance market is small when compared to the lending sector that it supports and as such capacity can be constrained on certain key markets.

Outside of those high demand countries, capacity remains strong and we're seeing several new entrants come into the marketplace.

More complex structures such as leverage finance attracting a smaller percentage of insurers.

The demand is growing on the back of this increased demand.

We're seeing insurers reacting and increasing the supply despite sovereign defaults and restructurings, the claims environment also remains benign.

Now if you are approaching the insurance market for these transactions, it is worth bearing in mind that capacity is finite and it tends to be awarded on the first come, first served basis.

Therefore, it's important to approach the market as early as possible to avoid disappointment.

Finally, looking at political risk insurance.

Given the world around us, companies continue to have fears over political risks, risk contagion and increased globalization.

Clients, who are increasingly using discussions, information sharing and scenario analysis to measure their exposures. Recent events and significant claims and notifications means that reinsures and unnerves about losses and undue arts and nervous about returns.

This means that insurers have tightened cover to satisfy reinsurance requirements and raise the rates that they're charging to ensure future profitability.

Whilst the capacity remains strong, appetite is constrained on certain markets, which means more deals are being syndicated.

Geopolitical volatility has led to rate increases and rates are significantly up and where they would have been 18 months ago.

But rate increases are not being applied uniformly across the board and certain products are suffering more than others.

Multi-country policies, for example, have seen some of the sharpest rate increases as they're deemed to have been under priced compared to single situation policies.

In addition to their former ESG stances, the insurers have got fairly consistent views that there are certain industries they're pulling back from, thermal coal, oil sands, weapons and tobacco top of the list of markets insurers are no longer looking at.

Our placement advice to clients when looking at political risks would be to ensure that all risks are correctly framed and presented to the market in a considered and strategic way to ensure that the risks get the best sounding and the widest possible coverage.


Head of Broking and Market Engagement & Head of Credit and Political Risk for Corporates

Stuart Ashworth is Head of Credit and Political Risk Insurance for Corporates and Head of Broking and Market Engagement for WTW's Financial Solutions team. Prior to this he spent nine years in Singapore, looking after WTW business covering Singapore, Hong Kong, Japan and Australia.

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