Coface SA, the world’s third-largest trade-credit insurer and a unit of Natixis SA, will be profitable next year after it gets a 175 million-euro ($249 million) capital injection from its parent.  “We should be close to break-even in the fourth quarter after continuing to lose money in the third,” Chief Executive Officer Jerome Cazes said in an interview. “All business lines will be profitable next year.” He declined to give a full-year outlook for 2009 earnings.  Natixis’s board decided that Paris-based Coface, which had a 103 million-euro loss in the first half, will get a 175 million-euro capital increase in the first quarter of 2010, Coface said earlier this week.  Coface received a 50 million-euro capital boost in July, the company said in September. 

Trade-credit insurers, which cover the payment of trade receivables for vendors when a buyer isn’t able to pay, have been hurt by the economic slowdown as corporate insolvencies rose to a record in 2009.   Coface, Amsterdam-based Atradius NV and Paris- based Euler Hermes SA, a unit of German insurer Allianz SE, account for about 85 percent of the 4.6 billion Euros in trade- credit insurance premiums globally. 

Standard & Poor’s cut its outlook for Coface to negative from stable on Dec. 21, saying the insurer’s “capital adequacy has deteriorated further in 2009 from already weak levels.”  The lowered outlook accounted for “challenges in restoring capital adequacy” even after the Natixis capital injection, S&P said.  The company won’t need more funds after the 175 million- euro capital increase, Cazes, 55, said. S&P’s concern “is surprising after several months of improvement in the credit- insurance industry,” he said.  Coface’s long-term credit rating of A compares with an AA- rating with a stable outlook for Euler Hermes from S&P and an A- rating with a negative outlook for Atradius.  Including the capital increase, Coface’s pro-forma shareholder equity would be 1.25 billion Euros at the end of 2009, Cazes said. That compares with 1.17 billion Euros at the end of 2008, according to the company’s Web site. “There will be more than 500 million Euros of excess capital,” Cazes said. “This is very good for our current level but also very good for our ambitions in 2010, as next year we will start increasing the volume of our guarantees again.”

Euler Hermes, the world’s largest trade-credit insurer, said last month it expects to remain profitable in 2009 and forecast insolvencies due to the global economic slump in 2010 will match this year’s record high. Credit-insurance policies cover more than $2 trillion Euros of trade receivables worldwide, according to the International Credit Insurance & Surety Association (ICISA). 

When asked about a possible sale of Coface following the latest capital increase, Cazes said “there are no plans to open the capital or for a sale of the company.”  Source: Bloomberg / BusinessWeek

BIIA Newsletter February 2010 Issue