The global credit crisis taking its toll on COFACE results: In January 2008, Coface had already announced the start of the fifth global credit crisis since the first oil price shock. In the fourth quarter, the credit crisis entered a second phase: the worldwide growth went through an air pocket, meaning that all forecasts have to be reviewed. The global GDP growth shock between 2007 and 2009 is now estimated to be 4.5 points; comparable to the 4.9 points recorded when the system stalled in 1973 and 1975, and more than double those of the three previous world crises. The impact is felt worldwide and should attain 5.9 points in Emerging Europe, 5.2 points in Emerging Asia and South America, 4.5 points in the Euro area, and 4 points in the United States and Japan.

The recent downturn in growth explains the upturn in default recorded by Coface. The two crisis phases are clearly reflected in the credit insurance line loss ratio: from an all-time low of 49% in 2007, it raised in 2008 to 59% in the first three quarters and to 109% in the fourth quarter alone. With a ratio of 73% for the entire year, Coface nevertheless performed better in limiting the degradation than the other credit insurance players.

Measures were taken in January to adapt to this second phase of the crisis by completing the “Act on the crisis” plan launched by Coface in January 2008. Such measures forecast a further increase of at least 30% in credit insurance premiums and a reduction of 30% in exposure rated as “speculative” (representing 16% of the exposure of Coface). An increased claims rate has caused a marked fall in profit with current loss for credit insurance (-€25m for the year); but contributions to profit by services (+22%) and factoring (+27%), on a sharp upwards trend, have provided Coface with positive operating profit of €136m. Net profit has decreased by 54% to €94m.  Source: COFACE

BIIA Newsletter April 2009 Issue