Credit insurer Coface may have struggled when an influx of claims during the crisis left it in the red. But as he unveils a new credit insurance model and promises profits for 2010, managing director Denecker is brimming with optimism
The skies over Manchester are pale and gloomy today, but that hasn’t stopped Xavier Denecker expressing his enthusiasm for the city. The managing director of Coface, on his first visit to Manchester, says it reminds him of Bilbao in Spain. Both were powerhouse cities during their industrial revolutions, with shipbuilding at the core. They suffered a typical post-industrial decline before new economies helped them to rise again in the later half of the 20th century.
It’s an interesting observation, and perhaps some might compare it to Coface over the past couple of years. The French-run company had been going from strength to strength until the financial crisis of 2008. The crisis caused Coface policyholders – suppliers of goods and services to companies, or ‘buyers’ as they are also known – to make a large amount of claims. Coface racked up an e163m (£135m) loss in 2009. And to add insult to injury, it found itself, along with other credit insurers, lambasted in the media for pulling cover and causing the downfall of wobbling business that could no longer attract suppliers or financial support from worried banks.
But Coface is on the mend and will make a profit in 2010, barring any exceptional events, Denecker says. His enthusiasm and confidence is buoyed by optimistic economic predictions made at today’s Coface Country Risk Conference 2010.
“We think that the euro crisis will be resolved, government will be able to fine-tune the public spending cuts, and credit regulation authorities will find a balance between more banking regulation and growth,” he says.
In a word of warning, though, Denecker adds in his distinctive French tone: “We must be prepared for a world that is more volatile and for huge pressures, because of the shift of balance between West and East. We must be prepared for a more severe crisis in a shorter period of time. For this crisis, we will be prepared with a fresh new credit insurance model.”
Our latest model
So what exactly is the new credit insurance model? In simple terms, it’s about creating a better relationship with the customer. Here’s how it works: Coface has given a commitment to more information and transparency about its risk assessment of buyers’ trading performance, so their chain of suppliers can have credit insurance. The buyers will be credit scored and the information made available to the suppliers, which are the Coface policyholders.
The ratings will guide Coface on its decision to provide cover and determine premium. The benefit is that customers could be provided with immediate additional cover. Denecker says the essential point is that the dialogue with buyers and their customers is constantly ongoing, rather than just taking place at renewal.
He says: “We want to talk to our customers and say: if you need more cover, we are prepared to give more cover, but it will cost this amount. So we think that we must be able to have a dialogue with our clients during the life of the contract and not only at renewal.
“If we are able to do that, then the dialogue will be much easier because it will mean if things are going better, we will be able to provide more cover; if things are going worse regarding risks, then we will be in a position to talk with our clients, and say we are prepared to maintain cover on bad risks, but here is the cost of this additional cover. This would avoid what occurred, which was brutal, unilateral correction from the credit insurer because the credit insurance only had the credit limit as a leverage. We are in a more flexible position.”
Rating from Europe
Another development for Coface is the decision to launch a European-based rating agency. Ratings could then be accessed by any organisation wanting information. The only hitch could be information gathering. Private firms can be very secretive.
But Denecker remains confident. “We need to convince companies that secrecy is not a protection; secrecy is a handicap for companies. Fortunately, the businesses that will be rated are mid-sized and large companies.
“So when it comes to the very big – for those listed – we have a good source of information. For those companies in the middle, they are already used to working with several banks, with providers who require information, so I would say they would be more ready than small companies to provide information.”
Coface is currently seeking FSA and European accreditation, aiming to have the service up and running as soon as possible. The political will is certainly there for a European-based rating agency, as the big US three of Fitch, Moody’s and Standard & Poor’s have been criticised for their failure to adequately rate the investments that triggered the financial crisis.
The support seems strange when looking back to a year ago. Former business innovation and skills secretary Peter Mandelson was keen to bash trade credit insurers, and launched the ill-fated government top-up scheme to ramp up capacity in the market.
Denecker says: “They decided it should not cost the taxpayer one penny. So they made it very expensive. Since the problem was not a problem of capacity, but a problem of pricing, they decided to put up a very high price, and the demand was nearly nil. But I would not blame the former government. They needed to have several measures ready and some of them worked, some didn’t work. And this didn’t work.”
It would be easy for him to lash out at Mandelson. But Denecker, a cultured and well-travelled businessman, doesn’t seem the vengeful type. He started his career in the banking industry, holding various positions from human resources to sales and marketing. He was hired by Coface in 1990 as communications director to help with an expansion in its product offering
and eventual privatisation from the French government four years later. After a stint in Italy as a commercial director, he became head of Coface in Spain and Portugal before arriving as head of Coface UK and Ireland in October 2007.
Having worked in communications, Denecker’s skills in diplomacy are on display today as he mingles with everyone from journalists to brokers and hotel staff. The atmosphere at the conference is business-like but relaxed, helped by the fact that Coface is on course to make a profit this year.
Denecker says: “2010 for us is not really a worry, because we are in a business that we see trends over a few months. We know we will be profitable in 2010, save for incredible incidents. We want to be prepared for the future, for the next crisis.”
Denecker’s stay in Manchester is cut short by a fatality on the tracks: he has to get the last train to London before the delays kick in. It’s unexpected, but Denecker isn’t ruffled. During his three years heading Coface, he’s dealt with a financial crisis, politicians and fierce media attention. Dealing with the unexpected is what he does best. IT