Trade Credit Special: The goliath stands tall amid losses and client collapses

It’s a beautiful day and the view from Euler Hermes’ office in the UK’s tallest building is stunning. UK and Ireland chief executive Fabrice Desnos can see past some of London’s great landmarks into the countryside, writes Saxon East.

But while the landscape beyond Canary Wharf Tower may look tranquil, the past year has thrown the country’s largest credit insurer into the spotlight, as it faced the blame for the collapse of numerous companies unable to secure trade credit.

Since Woolworths went bust last November, barely a week has gone by without a headline accusing Euler Hermes of driving one company or another into insolvency. Bound by contract confidentiality, Desnos says the firm can’t respond, leaving failing companies free to blame trade credit insurers for their collapse.

“It’s a smokescreen,” the Frenchman says in a matter-of-fact way. It’s no surprise Desnos is keen to meet Insurance Times and set the record straight in what has been a challenging year at the helm.

In 2009, Euler Hermes Group posted an €11.1m first-quarter loss, compared with €53.1m profit for the prior period in 2008. Combined ratio increased from 83.2% to 103%.

Desnos acknowledges that these are tough times, with a poor outlook for the 2009 economy, but he has a battle plan for the company.

Back to the torrent of criticism against trade credit insurers. Are trade credit insurers fair-weather friends – handing out credit insurance in the good times but scaling back and withdrawing cover when times are hard – precipitating a company’s collapse?

Desnos is having none of it. “The biggest frustration is to read that we have precipitated company failures when we are actually insuring against them. So how on earth could we have any interest in bringing about the very event we insure against?”

He muses for a moment before adding: “If you were to translate that to any other class of insurance, you would not think of an insurer deliberately putting cars against a wall or lighting fires.”

Has the negative media damaged the reputation of Euler Hermes?

“I don’t think so. There is a great demand for the product. Accusations tend to come from buyers rather than clients. Clients understand we are doing this to protect them, and that is what really matters.”

A painful year

After four years as group financial officer in London, Desnos took the hot seat in 2007. A year into his role as chief executive, the shaky economy triggered the Woolworths collapse.

That led to Euler Hermes, a worldwide group headquartered in Paris and owned by Allianz, having to pay more than £50m in claims.

Desnos won’t be drawn on Woolworths, but stresses in his distinctive French accent peppered with London twang that the company has gone through an unprecedented period.

“We knew there are various cycles in the business. We were expecting the economy to turn off and for this part of the cycle to be challenging, but we would never have expected anything as dramatic as 2008,” he admits. “It has been a massive shock globally; we were not expecting anything of that magnitude.

“2009 is going to be very challenging. In the UK, we forecast the number of companies being placed into administration, receivership or CVA (company voluntary arrangement) probably close to 60% more compared with last year, which itself was already a 70% increase on the prior year.”

Looking forward

So what action is being taken to steer Euler Hermes through the storm? Desnos keeps cool when asked if his firm will be cutting jobs. “From a risk management point of view, we are extremely busy. We are extremely busy as a business. So I can’t give you any more than this. Everyone is busy,” he says.

Externally, Euler Hermes is pressing buyers – companies that buy supplies – to speed up the sharing of their financial information. If buyers don’t play ball, Euler Hermes takes the tough line: “No information is negative information.”

Steering suppliers away from risky companies – even if that means a withdrawal of cover – is the name of the game. “There is more than anecdotal evidence of where we have managed to get our clients out of risky situations,” he assures IT.

Euler Hermes has also stepped up communication with brokers through regular risk management surgeries. Aon director of trade credit Susan Ross, who has attended the meetings, says of Desnos: “When he was finance director, he was always very sensible. He picks up on the detail and is very quick at understanding and formulating his own vision.”

He’s also diplomatic. On the government’s top-up trade credit insurance scheme, something that has come under much criticism for failing to help businesses with cover already withdrawn, Desnos refuses to bite. He “respects” the scheme and believes it is “well designed”.

“The biggest tension in the design of the scheme has not been the government and insurers not

getting on with each other,” he says. “We had a very good working relationship with BERR (now BIS: the Department for Business, Innovation and Skills) during the discussion around the design.

“The biggest tension has been the government making up its mind to as what it thinks is an acceptable level of risk that it can take on behalf of the taxpayers.”

After an hour of tough questions, Desnos has kept remarkably relaxed throughout, once or twice even lightening the atmosphere with laughter. And in this current climate of nasty surprises, perhaps a cool head is exactly what is needed. IT