Credit insuranCeMarket survey

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Credit insuranCe Market survey 2020 I N S U R E R S & S H A R E S

MARKET SHARE

TYPES OF INSURERS

This calculation is an estimate by AU Group, excluding China Export & Credit Insurance Corporation (“Sinosure”), the public Chinese

insurance company which achieved a turnover of approximatively €1.4 billion (2018 figures, net premium earned).

The International Credit Insurer & Surety Association (ICISA) comprises more than 50 members that provide Trade Credit Insurance across the world. However, two main categories of insurers can be distinguished: “Global” and “Niche” insurers.

“Global” insurers, characterised by: ➤ a strong international presence ➤ detailed information on very large numbers of buyers in their global databases ➤ global capabilities in providing credit management services

Leading insurers in this category: Atradius, Coface, Euler Hermes

“Niche” insurers, characterised by expertise in: ➤ particular products: Excess of loss, shared excess cover, top-up, single risk (e.g.: AIG, Chubb, Garant, Nexus, Liberty Mutual, Lloyd’s, Markel, QBE, Tokio Marine, XL Catlin, Zurich etc.) ➤ certain geographical areas (e.g.: ATI, Cesce, Credendo, FCIA, ICIC, QBE, Sace etc.) ➤ different types of risk: political risk, non-transfer (e.g.: Beazley, Liberty Mutual, Lloyd’s, Zurich...)

0

500

1 000

1 500

2 000

2 500

3 000

Euler Hermes

2 913

1 481

2 012

CofaceAtradius

• Atradius• Coface• Euler Hermes • Others23.7%

24.5%

17.2%

34.6%

CofaceCoface

-200

-100

0

100

200

300

400

500

AtradiusAtradius Euler HermesEuler Hermes

203228

431

475

209225

291343

122147

345

?• Before 2018 • 2018 • 2019• 2018 • 2019

+10%

+18%

+8%

• Before 2018 • 2018 • 2019

The trade credit insurance market remains very oligopolistic with 3 “global” insurers representing more than 75% of the total premium (estimated to be approx. €7 billion in 2019).

Euler Hermes remains the largest credit insurer with 34.6% market share followed by Atradius 24.5% and Coface with 17.2% as of December 31st, 2019.

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0

500

1 000

1 500

2 000

2 500

3 000

Euler Hermes

2 913

1 481

2 012

CofaceAtradius

• Atradius• Coface• Euler Hermes • Others23.7%

24.5%

17.2%

34.6%

CofaceCoface

-200

-100

0

100

200

300

400

500

AtradiusAtradius Euler HermesEuler Hermes

203228

431

475

209225

291343

122147

345

?• Before 2018 • 2018 • 2019• 2018 • 2019

+10%

+18%

+8%

• Before 2018 • 2018 • 2019

TURNOVER OF THE MAIN INSURERS (M€)

KEY FACTS

Credit insuranCe Market survey 2020 T R E N D S & F I N A N C I A L P E R F O R M A N C E

The trade credit market has posted strong growth in 2019 (around + 7%) and all the main insurers have shown good performance following the trend of the overall market.

➤ Atradius continues its very regular growth over the past 5 years (+6% vs 2018) and has now surpassed the €2 billion revenue mark. A new CEO, David Capdevila has been appointed on the 1st of January 2020. The improvement of its Trade Credit Insurance activity has been consistent in all regions of the world, even in Spain, its largest market, in a very challenging competitive environment.

➤ Coface confirms it successful turnaround started 2 years ago and sees an increase in revenue of +6.9%. This growth is mainly due to its policyholders’ business growth, new business development and the acquisition of PKZ (a credit insurer leader in Slovenia). In February 2020, Natixis, Coface’s majority shareholder, sold 29.5% of the credit insurer’s capital to Arch Capital Group (See Shareholder structure hereafter).

➤ As in 2018, Euler Hermes posted the best performance among the “big three”: +7.7% (+7% at constant scope and FX) reaching 2,9 billion euros in revenue. Its new business result has been higher than ever, combined with dynamic organic growth, especially in North America and Asia Pacific. Going deeper into digitization, Euler Hermes has launched new products available through “API” such as “Single Invoice Cover” dedicated to fintechs and start-ups.

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Turnover variation 2019 vs 2018 Calculated growth

Atradius 6.0%Coface 6.9%Euler Hermes 7.7%

0

500

1 000

1 500

2 000

2 500

3 000

Euler Hermes

2 913

1 481

2 012

CofaceAtradius

• Atradius• Coface• Euler Hermes • Others23.7%

24.5%

17.2%

34.6%

CofaceCoface

-200

-100

0

100

200

300

400

500

AtradiusAtradius Euler HermesEuler Hermes

203228

431

475

209225

291343

122147

345

?• Before 2018 • 2018 • 2019• 2018 • 2019

+10%

+18%

+8%

• Before 2018 • 2018 • 2019

Atradius records a tremendous increase of its operational profit +18%, when Coface posted an increase of +8% and Euler Hermes +10%. 2019 has seen net profit at unprecedent levels for the “big 3”.

➤ Atradius has posted a net profit of €228M, +12,5% compared to 2018 (€203M); showing a strong profitability ratio of 11.3% (Net Profit/Turnover).

➤ With a net income up by 20%, Coface’s profitability ratio reached 9.9% (Net Profit/Turnover) and produced an excellent performance: €147M

➤ Euler Hermes is now fully integrated in the Allianz Group and, being one of its main profit contributors, is very discreet in its financial communications; it has not disclosed its net profit for 2019. However, considering the 10% increase in the operating result shown above, we can assume that Euler Hermes not only has the highest net income of the three, but has also recorded a level of profit never seen before.

OPERATING RESULT (M€) NET PROFIT (M€)

Credit insuranCe Market survey 2020 P R O F I TA B I L I Y O F T H E M A I N P L AY E R S ( M € )

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Covid-19 situation and impact on insurers’ profitability:Credit insurers are facing probably the most difficult situation since they started business and the magnitude of the expected losses is such that in most of the “cradle” states of credit insurance (Belgium, Denmark, France, Germany and UK), the insurers have sought the support of local governments. As a result, these European countries have concluded state reinsurance agreements to be able to cope with the deluge of claims expected in the second half of 2020 and the beginning of 2021. Other countries might follow with government support but there is no consistent approach across Europe. Nor is there, as of today, any significant support outside of Europe.

➤ The insurers’ profitability is determined by their Loss Ratio (claims/premiums) and their Combined Ratio (Loss ratio plus overhead expenses). During the “subprimes” financial crisis more than 10 years ago, insurers were shaken by increased payment defaults, bankruptcies and the resulting claims paid to their insureds. The economic impact of Covid-19 on insurers’ loss ratio will be reflected in our Market Study next year.

➤ The theoretical break-even point of the combined ratio is an estimated 100% (above which Insurers consider that their operations generate a loss).

➤ The top 3 insurers are showing a wider spread in their results in 2019 (than in 2018), but Atradius heads its competitors with a net combined ratio of 73.4%.

50

100

90

80

70

60

140

130

120

110

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

100 000

200 000

300 000

400 000

500 000

600 000

• Atradius

• Coface

• Euler Hermes

Revenue per capita (in Euro)

346 595

569 810502 241

Atradius Coface Euler Hermes

Profitability level

Credit insuranCe Market survey 2020 M E A S U R E O F P E R F O R M A N C E

NET COMBINED RATIO (in%)

STAFF

The headcount to revenue ratio reflects the company’s productivity. Atradius is the company presenting the best combined ratio and revenue per capita.

50

100

90

80

70

60

140

130

120

110

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

100 000

200 000

300 000

400 000

500 000

600 000

• Atradius

• Coface

• Euler Hermes

Revenue per capita (in Euro)

346 595

569 810502 241

Atradius Coface Euler Hermes

Profitability level

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Net Combined ratio (in%) Atradius Coface Euler Hermes

2016 77.4 97.4 79.8 2017 75.5 86.5 80.5 2018 76.7 79.6 77.9 2019 73.4 77.7 79.9

Underwriters Atradius Coface Euler Hermes

Number of employees 3 531 4 273 5 800Turnover per capita 569 810 346 595 502 241

Credit insuranCe Market survey 2020 S O LV E N C Y & E Q U I T Y

NET EqUITY (M€)

• 2014 • 2015 • 2016 • 2017 • 2018 • 2019

0

500

1000

1500

2000

2500

3000

Euler Hermes

2 913

1 481

2 012

CofaceAtradius

Euler HermesCofaceAtradius

• Allianz • Euler Hermes • Others• Natixis • Employees • Floating• Grupo Catalana Occidente

94.91%

42.2%

57.3%

100%

0.5%

1.45%

3.64%

0

200

400

600

800

1 000

Atradius Coface

569

512540

673

623653

Euler Hermes

950962894

• 2017• 2018• 2019

1 000

1 500

2 000

2 500

3 000

3 500

Atradius

2 009

Coface

1 924

Euler Hermes

2 870• Before 2018• 2018• 2019

TOTAL POTENTIAL ExPOSURE (BN€)

As of December 31st, 2019, the total exposures were:➤ Atradius €673 Billion (vs €653B) in 2018.➤ Coface €569 Billion (vs €540B).➤ Euler Hermes €950 Billion (vs €962B).

• 2014 • 2015 • 2016 • 2017 • 2018 • 2019

0

500

1000

1500

2000

2500

3000

Euler Hermes

2 913

1 481

2 012

CofaceAtradius

Euler HermesCofaceAtradius

• Allianz • Euler Hermes • Others• Natixis • Employees • Floating• Grupo Catalana Occidente

94.91%

42.2%

57.3%

100%

0.5%

1.45%

3.64%

0

200

400

600

800

1 000

Atradius Coface

569

512540

673

623653

Euler Hermes

950962894

• 2017• 2018• 2019

1 000

1 500

2 000

2 500

3 000

3 500

Atradius

2 009

Coface

1 924

Euler Hermes

2 870• Before 2018• 2018• 2019

➤ Due to further changes in financial regulations(Solvency II), insurance and reinsurance companies are required to increase their capital ratios to be in line with the risks they carry.

➤ Over the past 5 years, credit insurers have beenstrengthening their equity. For instance, Atradius and Euler Hermes report an equity level approximatively equal to their annual turnover, Coface Equity (€1 924M) is much higher than its Turnover (€1 481M).

Reinsurance contributes significantly to the solvency of insurance companies. Its role has increased as credit insurance becomes more important for the growth of trade credit following the tightening of traditional financing across the world.

Atradius, Coface and Euler Hermes which currently cover 80% of credit insurance risks, would be unable to maintain

growth without reinsurance. These insurance companies use reinsurance treaties.

In 2020, credit insurers in some countries have entered reinsurance treaties with their local governments which wish to support trade inter-company credit and assist business recovery.

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REINSURANCE

Credit insuranCe Market survey 2020 S H A R E H O L D E R S A N D R AT I N g S

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FINANCIAL RATING OF THE TOP INSURERS (UPDATE JUNE 2020)

SHAREHOLDER STRUCTURE

Financial Strength Rating Companies Standar & Poors Moody’s Fitch A.M. Best

AIG A+ A2 A A outlook stable outlook stable outlook stable outlook stable

ATRADIUS A2 A outlook stable outlook stable

CHUBB AA A++ outlook stable outlook stable

COFACE A2 AA- outlook negative outlook negative

CREDENDO AA outlook stable

EULER HERMES AA Aa3 A+ outlook stable outlook stable outlook stable

LIBERTY MUTUAL A A2 A outlook stable outlook stable outlook stable

MARKEL A A2 A outlook stable outlook stable outlook stable

qBE A+ A1 A+ A outlook stable outlook stable outlook stable outlook stable

ZURICH AA- Aa3 A+ outlook stable outlook stable outlook stable

1 000

1 500

2 000

2 500

3 000

3 500

• 2014 • 2015 • 2016 • 2017 • 2018 • 2019

0

500

1000

1500

2000

2500

3000

Euler Hermes

2 913

1 481

2 012

CofaceAtradius

Euler HermesCofaceAtradius

• Allianz • Euler Hermes • Others• Na�xis • Employees • Floa�ng• Grupo Catalana Occidente

94.91%

42.20%

57.30%

100%

0.50%

1.45%

3.64%

0

200

400

600

800

1 000

Atradius

2 009

Coface

1 925

Euler Hermes

2 870

Atradius Coface

569

512540

673

623653

Euler Hermes

890• 2015 • 2016 • 2017 • 2018 • 2019

• 2017 • 2018 • 2019

1 000

1 500

2 000

2 500

3 000

3 500

0

200

400

600

800

1 000

Atradius

2 009

Coface

1 925

Euler Hermes

2 870

Atradius Coface

569

512540

673

623653

Euler Hermes

890

• 2015 • 2016 • 2017 • 2018 • 2019

• 2017 • 2018 • 2019

In February 2020, Natixis, Coface’s majority shareholder, sold 29.5 % of the credit insurer’s capital to Arch Capital Group, a Bermuda-based insurer listed on the New York Stock Exchange. After this operation, Natixis will hold

only 12.2% of Coface’s capital. This operation has been announced but is not effective yet (to be agreed by the regulator (ACPR)).

AU Group

www.au-group.com HQ : 91 rue du Faubourg Saint Honoré - F - 75008 Paris - +33 1 42 66 66 46

DISCLAIMERDocument («the Survey») is published by AU Group for information purposes only. The Survey cannot be considered as providing specific advice. Readers should make their own independent assessment of this information to make their own decisions. The Survey was prepared based on information published by ICISA, insurance companies operating in the credit insurance market and rating companies. It contains data and estimates made by AU Group based on several assumptions. Although the information collected from ICISA, insurance companies, and rating companies are believed to be reliable, they have not been independently verified by AU Group. AU Group gives no warranty (express or implied) with respect to this information, regarding the accuracy, completeness, or adequacy of this information. AU Group cannot be responsible for any loss or damage resulting in any way from the use of the Survey. In no event will AU Group, its related companies, partners, agents or employees, be liable to anyone for any decision made or action taken in reliance on the information contained in this study, nor for any consequential, direct or indirect, damages. Unless otherwise stated, any views, forecasts and estimates are those of AU Group as at 30/06/2020 and are subject to change without notice. This document is the exclusive property of AU Group. It cannot be used, reproduced, represented, modified, or communicated in any other format without the prior and express permission of AU Group. This document is not intended to be distributed in any jurisdiction in which this would be prohibited.

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