Troubles continue in trade credit sector

Trade credit insurer Euler Hermes Group has released a profit warning after the collapse of Woolworths triggered multi-million-pound claims.

Euler Hermes said it expected net income of £86.8m to £95.4m for 2008 and a loss in the fourth quarter.

Only last month Euler Hermes reported expected nine-month net income of £131.9m and a profit in the third quarter.

The Paris-based insurer, part of Allianz Group, said Woolworths was a “major claim” and came at a time when there was “a general worsening of the claims environment”.

The other large trade insurers in the UK market, Atradius and Coface, would not comment on whether they had exposure to Woolworths, which went into administration two weeks ago.

In a company statement, Euler Hermes said: “Reduced consumer spending, combined with tightening financial conditions, will continue to maintain pressure on the liquidity of corporates.

“Euler Hermes does not expect any major improvement of the actual claims environment in the coming months.”

The share price of the insurer, which controls 35% of the world’s trade credit cover, has plunged this year.

The collapse of Woolworths, which owned entertainment supplier EUK as well as a network of shops, and furniture giant MFI is expected to trigger more claims for insurers.

Pierre Flabée, an analyst at Kepler Capital Markets, said: “Woolworths is a big claim and there could be others coming. We are entering the most difficult phase for credit insurers.”

Alan Duncan, the shadow business secretary, said about 12,000 small businesses had trade credit withdrawn in the last week of November. He called on the government to assist small firms struggling to get cover.

An ABI spokesman said insurers could never guarantee they would provide cover to firms, but said they continued to assess risk carefully and on an individual basis.

He said: “Anything the government can do to help businesses is something welcome, but that is not to say intervention is needed in the insurance market.”