Euler Hermes, companies and the economic crisis

Euler Hermes fighting to remain customer focused despite the downturn with 1% increase in global insured coverage.

Interview with Michel Mollard, CEO of Euler Hermes SFAC (France), member of Euler Hermes Group Management Board, supervisor of Euler Hermes Group Commercial Activities.

26.03.2009


Can you give us a brief introduction to the economic and business background?

More than ever, protecting cash flow is at the heart of most businesses concerns. To counter this risk and provide enough liquidity for them to operate, most choose to delay their own payment (42%) to manage this situation. Even during a positive economic cycle 33% of customer accounts will be paid after the due date.

Now with GDP forecast to contract in the Eurozone alone, by at least 3% in 2009 and insolvencies expected to rise by 25% this year, these payment delays and default will only increase and the consequences create more instability for businesses. Redundancies, business restructuring and recapitalisations are all symptomatic of this most basic building block of business, cash flow.

But the concentration on the credit markets by the media has also had a positive side affect for the profile of credit insurance, with awareness and understanding growing.


What is Euler Hermes position in the value chain during this economic crisis?

Euler Hermes has invested for over 100 years in proprietary information. This information is current and live, unlike the information gained from many information sources, which is by definition historic. This type of up to date information is permanently monitored so we can understand in over 50 countries, how individual businesses are coping in this economic climate.

This primary knowledge maximises stability in a changing economic landscape and feeds into a consistent and global Euler Hermes standard to appraise credit risks. As we also usually know first, when a business is in trouble we have the opportunity to understand when collections activity may be needed. This enables a seamless process for our insured’s who need collections support. But in addition to this collections business we have also launched, in 2009, a dedicated third party Trade Receivables Collection business, offering services for the development of collections customers, outside our existing insured customer base.


How do you support your customer relationships? Can you talk about your overall exposure?

Credit insurance is unlike many other insurances because it is not a policy that is bought and placed in a drawer and then taken out when a claim is made. Instead Euler Hermes provides an ‘active policy’, engaging with 57,000 clients on a permanent basis to advise them, through requests for credit limits, which of their customers are financially solid at any particular time.

It is in our interests to cover a limit so that we look after our client relationship, but also protect them, as they often share a percentage of the risk. But at times of economic instability some limits are just not possible to grant. In this instance companies cannot be covered and it is then up to our client to take the full trading risk themselves or not trade.

Having said this, in 2008, wherever possible, we have tried to take our customers side during this time of crisis, in fact we have increased our exposure slightly during 2008, not reduced it. This is possible through the very highest standards in information collections and dissemination.

In addition, where we cannot grant full credit limits and where the risk is too great for any single entity we have worked with government bodies to help introduce top up cover. This cover effectively allows an organization that gains cover, for example on 50% of the risk, to gain additional coverage to make up the difference, with the amount underwritten by the government. We have supported and helped develop the French CAP scheme and are also in similar discussions with other European governments.


What about the debate that exists when it comes to create the right trading decisions?

Creating decisions on trading limits can create debate when clients want to trade, especially when we are advising that a new or existing customer is a high financial risk and therefore a credit limit cannot be granted. This type of debate very much replicates the traditional relationship between a credit manager and a sales director. One wants new business, the other to protect cash flow. This healthy tension can increase during an economic downturn, but we remain firmly customer orientated because the alternative is financial loss for them and ultimately for us, as we may lose them as a client. Client loss is not an option for us and we therefore remain committed at all times to our customer needs, listening and changing for them wherever possible.