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Security in Uncharted Markets

José Antonio Genesta - Atradius
Director of New Business


Cinthya Alaniz Salazar By Cinthya Alaniz Salazar | Journalist & Industry Analyst - Tue, 05/24/2022 - 09:37

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Q: How does credit insurance support new business ventures?

A: Credit insurance is the principal tool Atradius uses to protect its policyholders’ accounts receivables, following an in-depth analysis of their respective customers. This is Atradius’ core business and is particularly relevant for policyholders interested in expanding to new geographic markets worldwide, for which they lack market intelligence. In this sense, our investigative analysis and coverage provides our clients with the peace of mind and confidence needed to tackle new markets without hesitation. 

Credit insurance is not a static policy used only when clients default on their corresponding payments; it is a dynamic tool that clients can and should use weekly, if not daily, to gauge markets, monitor clients and discover new market opportunities. There are many examples in which Atradius has helped policyholders grow their sales by extending a greater line of credit to their clients based on real-time market intelligence flagged by our analysts. Our most proactive policyholders have deferred to Atradius to identify new commercial leads, assess the viability of a sale and calculate the coverage they are able to extend to new clients. Ultimately, Atradius accompanies clients as their most valuable strategic partner as they expand into and scale up in new markets. 

Q: What do companies’ risk profiles look like when proceeding without credit insurance?

A: Mexico is a market with a limited culture of credit insurance in comparison to neighboring markets, despite its international-enterprise business community. Insured companies are the minority in Mexico, which largely stems from a lack of education and market penetration. This is counterintuitive to business economics that consider accounts receivables as one of its most important active assets. In Mexico, payments are often the final priority. A cost-benefit analysis between a policy fee and a potentially devastating client default makes it abundantly clear which is the better alternative. 

Our policyholders can sleep peacefully, augment their credit lines for their clients and even take on more risk to continue growing. Meanwhile, non-policyholders are left exposed to payment defaults and fraud schemes, which are on the rise and can ultimately compromise a company’s longevity. For these reasons, Atradius is incessantly cultivating a greater culture of credit insurance awareness in Mexico, not only as a means of extending its added value but as a strategic approach to fostering the country’s economic recovery and competitiveness.  

Q: How are high inflation rates likely to impact companies and by extension Atradius in 2022?

A: The global economic context generated by the prolonged COVID-19 pandemic and recent events has accentuated payment defaults, as reflected in data from 4Q21 and 1Q22. Our policyholders have begun to flag these occurrences, with several reporting delayed payments extending beyond the average granted period of 30 to 60 days to somewhere between 90 and 180 days. Fortunately, while claims remain below year-to-year averages, we are carefully monitoring the market and our policyholders’ portfolios for any indicative market tendencies. 

Uncertainty is also prevalent in a market with high volatility and most companies will first cut back on suppliers payments before touching other alternatives. This behavior has reduced financial liquidity, threatening to feed into forecasted recessions in the US, the EU and other markets, even without considering other consequential socio-political and economic factors. 

Q: How is Atradius prepared to protect itself and its clients in the event of an economic downturn?

A: It is too soon to consider this possibility but Atradius has first-hand experience navigating these conditions from the 2008 market crash. That year, as the economic recession consumed the global economy, Atradius faced a wave of claims that hit the company hard. It had to cut credit lines of the buyers from our policyholders and our policy coverage shrunk almost overnight. During this period, Atradius was among those insurance companies with the highest payouts but it got out and ahead. This experience helped Atradius’ leadership navigate the trying economic conditions created by the COVID-19 pandemic. This time, we created strategies in hand with our clients that minimized risk without curbing our ability of credit management. It was a successful strategy that allowed us to retain the majority of client portfolios during the two years of high economic volatility. If another economic recession were to take hold domestically or internationally, Atradius will once again harness the wisdom from these experiences and again come out on top. 

Q: Given the present volatility of the market, what industry sectors should be particularly cautious of proceeding without credit insurance? 

A: The most complicated industries in Mexico nowadays are oil and gas, construction and hospitality. While some were able to recover in 2021, the global economic context remains highly volatile. The industries best positioned to succeed in 2022 are pharmaceuticals, chemicals, financial services and the food industry, among others.

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