France-based international credit insurer Coface has reported solid Q1 results with positive net income of €12.7m on a 0.9% increase in turnover to €370m.

Xavier Durand, Coface CEO, said the positive net income reflects only the initial effects of the crisis, and will affect revenues through declining client activities and increased claims. “Our decision to propose no dividend for 2019 and to significantly increase our liquidity, which now accounts for 21% of our investments, strengthens our ability to weather this crisis,” he said.

“We are also working alongside governments to maintain credit insurance for the largest possible number of companies. Coface is proud to have signed agreements with the French and German governments and is continuing discussions with others States.”

He added that over 4,000 Coface employees are working from home with no disruption in the quality of service delivered to clients. “This has enabled us to maintain a constant dialogue with our customers at a time when the environment has forced us to step up the pace of our prevention measures.”

Coface’s client retention rate was high in most regions and reached a new record of 94.3% for the Group. New business stood at €51m, marking a rise of €16m compared to 2019. New business was supported by commercial revival in midmarket and stronger performance on large accounts. The implementation of confinement measures has since resulted in a sharp slowdown in Coface's commercial activities, Coface said.

In Central and Eastern Europe, turnover rose by +11.6% and by +2.3% at constant FX and perimeter, mainly due to growth in credit insurance. The increase at current perimeter is explained by the contribution of Coface PKZ, the activity that was integrated in Q2-2019.

In the Mediterranean and Africa, a region driven by Italy and Spain, turnover grew by +5.5% and by +5.7% at constant FX. This was due to positive sales momentum and growth in client activities prior to the instigation of confinement measures in countries heavily affected by the disease. 

In North America, revenues increased by +10.2% on a reported basis and by +7.1% at constant FX. This rise was driven by client retention and growth in new business.

In Latin America, turnover fell by -19.5% at current FX and by -5.4% at constant FX. This decline is within an environment of a cautious approach to risk (due to monetary and social turbulence) following several quarters in a challenging economic context. 

Turnover in the Asia-Pacific region was down by -6.1% at current FX and by -8.3% at constant FX. The region has felt the early effects of measures taken to combat the propagation of the pandemic (e.g. China, Hong Kong).

With reference to the future outlook, Coface said it anticipates a decrease in global GDP of -1.3%, which should translate into a +25% increase in the number of global bankruptcies, with very strong disparities between countries and sectors. Coface therefore anticipates a sharp increase in claims over the coming months, a downwards pressure on its turnover through lower activity of its clients, as well as a decline in its financial income in very volatile markets.

In April, Coface agreed to implement economic support schemes with the French and German governments. “The impact of these agreements on the first-quarter financial statements is not considered material. The German scheme will result for the year 2020 in the ceding of 65% of written premiums and 90% of claims recorded after 1 March and relating to deliveries made in 2020. This will significantly affect Coface's profitability, without it being possible at this stage to determine the impact, given the high level of uncertainty concerning the amount of claims recorded,” Coface said.

The French agreement allows, when the credit insurer has decided to reduce or to cancel a limit, to propose to the credit insurer’s client an alternative guarantee, managed by Coface but reinsured by CCR or BPI France in accordance with the schemes adopted. As this agreement is not retroactive, it has no impact on the first-quarter financial statements. Similarly, due to its nature, it transfers risks directly to reinsurers and will therefore have only a limited impact on Coface's financial statements. 

Coface anticipates a significant increase in claims declarations from the second quarter of 2020, and says it will have an impact on its results, the extent of which will depend on the remaining duration of the containment, the speed of the economic recovery and the effectiveness of government measures.