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Atradius, one of the world’s largest credit insurers, is overhauling its strategy towards providing trade credit insurance to the metals industry, and plans to reclassify the sector and improve the level of cover to the industry.
As part of the shift in strategy, Atradius has appointed a new senior underwriter to lead its metals team.
Kevin Naughton has 28 years’ experience in both the commercial and risk underwriting parts of the business, including specific expertise in metals having covered the automotive sector.
News of his appointment and the review of the sector’s credit insurance follow the meeting last week between Atradius and the UK metal scrap association, the British Metals Recycling Assn (BMRA). The aim of the meeting was to improve the provision of trade credit insurance cover offered by Atradius to the metals sector, particularly within the recycling industry.
Both sides hope the dialogue between the industry and the insurer will improve co-operation between the industry and its insurers.
“The meeting was productive on both sides and as a result, we feel able to launch some immediate initiatives to address concerns raised in the meeting,” Atradius director for the UK and Ireland Shaun Purrington said in a joint statement with the BMRA on Wednesday.
Purrington and Marc Henstridge, head of risk for the UK and Ireland, attended the meeting with the BMRA delegation, which included director general Ian Hetherington.
“The main focus was on how we could exchange information on trading dynamics in the sector and improve the communication between BMRA members requiring our support,” Purrington said.
News of the changes will be welcomed by scrap merchants and alloy producers, which have blamed part of their problems in the past year on the withdrawal of credit insurance on their customers – their exposure to the stricken automotive sector means they are treated with unnecessarily heightened caution, market participants complain.
The reduction or removal of cover is considered detrimental to the metals recycling industry.
While Atradius is willing to adjust its strategy to help the industry, it is urging metal businesses to, in turn, improve their level of transparency and disclosure – for instance, providing up-to-date financial data – to help insurers to understand their particular set of circumstances.
Privately owned companies in the UK must file results with Companies House, but these are often too old for insurers, which need to see accounts that are less than three-months old to be reassured of the creditworthiness of a company.
In some higher risk cases, they ask for sensitive information that might only be available to management.
“A challenge specific to this sector is that many businesses have proven slow to adapt to the changes in the provision of information required in this economic climate. Last year’s filed accounts just aren’t enough,” Purrington said.
“It’s important to remember that trade credit insurance was founded to stimulate and enable safe trade – we have no ulterior motive. We urge businesses to be as open with us as possible – the more open they are, the more likely it is that we are going to be able to provide cover,” he added.
The metals and timber industries are the least likely to come forward with information for their insurers, according to a spokeswoman for Atradius.
When companies participate in a buyer trade review, which takes place if there are major issues threatening a business, some 74% of cases have all or part of their cover restored if they are able to explain contingency plans or any anomalies in their financials, the spokeswoman said.
The meeting also discussed the possibility of breaking down sector groupings and reviewing withdrawn limits, with a view to considering the reinstatement of cover where possible, as MB reported last week.
The industry delegation has asked to consider scrap merchants and aluminium alloy producers in a separate category to the automotive sector when deciding whether to insure or not (MB Oct 29).
Scrap is currently listed under engineering, automotive and metal manufacturing.
In a separate statement, Atradius announced it has increased cover capacity on some 13,000 companies following a comprehensive review of its risk underwriting strategy. Small- to medium-sized business will benefit in particular from the change and more than £1 billion of extra trade could be facilitated in the coming months, it said.
All trade sectors will see an increase, but there has been a particular improvement for companies who operate in the construction and engineering sectors, it said.
Other sectors which will reap the benefits include automotive, metals as well as ceramics, clothing and footwear, furniture, paper, print and publishing, hotels and catering, textiles and timber.
The increase in capacity has come about following improvements in the sourcing of up-to-date financial information, which means Atradius is able to identify those companies which are performing well within their trade sector despite the economic downturn and continued slump in bank lending, it said.
Atradius plans to contact all customers and alert them to credit risks where increased capacity will be of specific interest to them, for example, where previous applications were unsuccessful.
“For some time we have stated that cover would increase if we could to see improvements in the sharing of information by businesses. We are delighted to have seen a significant shift in business practices to this effect. This will be a welcome boost for our customers as they grapple with credit risks in an uncertain environment,” said Purrington.
The BMRA welcomed the initiatives from Atradius.
“We are feeling very positive about the dialogue with Atradius and hope that this will pave the way for a fruitful partnership with our members,” said Hetherington in the joint statement.
“We are particularly pleased to be able to work with the senior management team at Atradius to ensure their fuller understanding of the measures that metal recyclers take to manage their exposure to risk and to ensure that credit insurance capacity remains available as a means of facilitating the domestic and export trade in recycled metals for the long term,” he added.