Sep 23, 2011
Company stresses importance of credit risk insuranceBack
Africa|Aon South Africa|Coface South Africa|Credit Guarantee|Lombard’s Insurance Company|Africa|South Africa|Asset Insurance|Credit Insurance|Equipment|Export Credit Insurance|Physical Infrastructure|Products|Scoped Business Credit Risk Insurance|Services|Solutions|Transport|Du Toit|Infrastructure|Richard
© Reuse this
Companies insure their assets; how- ever, many overlook or choose not to insure one of their biggest assets, the debtor’s book.
Aon divisional executive director Richard du Toit states credit risk should not be overlooked, given the heightened threat of financial failure and issues such as political risk.
Credit insurance is the underwriting of debtor books, as apposed to asset insurance, which is insuring the physical infrastructure and equipment.
“About 15% of the total business credit market is credit insured,” says Du Toit. Out of all insured businesses, roughly 85% are insured for assets only.
He says the value of the debtors book can easily be in excess of any other asset in the company; this is especially true for trading companies.
Credit risk arises the moment goods or services are supplied to a third party, and the risk is exposed until payment is received.
Du Toit states the essential covers are domestic credit cover, which protects against liquidation and nonpayment by debtors within South Africa, and export credit insurance, which, in addi- tion to commercial debtor cover, has short-term political cover that protects the exporter against default by a foreign government.
“A major benefit of this kind of pro- tection is that companies can explore new markets and consider transactions with debtors whose credit standing is unknown and untested,” he says.
He adds there are only three companies that provide this type of cover in South Africa, namely Credit Guarantee, Coface South Africa and Lombard’s Insurance Company. Many varied credit transactions, on both the domestic and the export market, can be underwritten.
“There are no minimum requirements for companies to acquire credit insurance. Companies of all sizes can insure their debtor books and there are many types of products for companies to choose from. The process of arranging cover involves evaluation of the credit risk exposure, resulting in effective ‘right- sizing’ and correct structuring of cover,” says Du Toit.
Negotiating with underwriters to arrange competitive and affordable rates, the ability to handle the credit and political risk needs of clients with a great variety of business transactions and selecting the most appropriate cover are all considerations for companies when choosing insurance.
“Corporate cash flows are under strain; there are a number of sectors where there are reports of extended credit terms being requested. Higher costs of doing business, owing to factors such as elec- tricity and transport cost increases, are impacting on companies’ profitability,” states Du Toit.
He says insurance rates have remained steady, but that can change in the medium term as companies are seeking to write covers as soon as possible under the most favourable terms.
“Credit exposures are assessed in their entirety, depending on the nature of a given business, and cover should be scoped against a risk management premise. Credit concerns should not be allowed to inhibit business and credit insurance provides solutions,” he concludes.
Edited by: Chanel de Bruyn© Reuse this Comment Guidelines (150 word limit)
Other Financial Services to Industry News
Payroll is one of the biggest expenses in any small or medium-sized enterprise (SME), yet it is also one of the areas most likely to be neglected in terms of risk management, according to multinational enterprise software company Sage.
Using private equity to gain capital, especially for small to medium-sized enterprises (SMEs) that might not meet the criteria to qualify for bank loans, seems like a preferential means of raising capital in South Africa’s current tough economic climate, according to...
South Africa’s banking sector is one of the best in the world, in terms of management and conduct, according to audit, tax and advisory firm KPMG.
Updated 7 hours ago The retail price of 95-grade petrol in South Africa will drop by 45 cents or 3.3 percent a liter from next Wednesday, while wholesale diesel will decrease by 4.9 percent, the government said on Friday. Petrol will cost 13.16 rand ($1.20) a liter while the wholesale...
Updated 7 hours ago Special purpose vehicle GreenCape will, by the end of 2014, make an application to the Department of Trade and Industry (DTI), the Western Cape provincial government and the City of Cape Town to declare Atlantis, on the Western seaboard, a special economic zone...
Updated 7 hours ago The German government has committed a further R70-million towards the second phase of the Non-Motorised Transport (NMT) programme. The NMT programme forms part of the Department of Environmental Affairs’ 2010 FIFA World Cup National Greening Legacy Programme.
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
In the next 20 years, it was expected that, in Africa, more people would live in cities and towns than in rural areas, United Nations Habitat executive director Dr Aisa Kirabo Kacyira said at the Human Settlements Indaba that took place earlier this month in...
Tough-talking Human Settlements Minister Lindiwe Sisulu has committed government to building 1.5-million low-cost houses over the next five years, telling the Human Settlements Indaba in Johannesburg on Wednesday that the State would achieve this target through the...
Over the past 20 years there has been persistent concern about deindustrialisation in South Africa, as well as the fact that locally produced manufactured products have been increasingly displaced by imports.
Financial agreement for Ghanian independent power producer (IPP) Cenpower Generation Company’s $900-million, 350 MW combined-cycle gas-turbine power plant was finalised earlier this month, paving the way for the project’s construction to begin before 2015 in Tema,...
The revenue implications for South Africa of ‘base erosion and profit shifting’ by corporate taxpayers are firmly in the crosshairs of the Davis Tax Committee (DTC) and Judge Dennis Davis hinted last week that recommendations were being considered to “detect and...
Next ArticleHealth insurance to cost less than taxpayers expect