Two Types of Risk EULER ACI offers coverage for both commercial and political risks. Commercial accounts receivable coverage is available on both domestic and foreign accounts receivable, protecting against buyer insolvency and protracted default (slow pay). Political risk coverage is also available on foreign accounts receivable, providing protection against risks such as a buyer's inability to obtain hard currency, changes in import and export license regulations, acts of war which frustrate performance under a contract, and other government actions beyond a buyer's control.
EULER ACI's Domestic and Multi-Markets products also offer a risk-attaching feature which binds the policy coverage to shipments made during the policy period for protection which can extend beyond the expiration of the policy. Pre-shipment coverage and protection for work-in-progress is also available.
EULER ACI's goal is to partner with its customers in their accounts receivable and credit risk management. Risk management is a shared responsibility between EULER ACI and its clients. Although EULER ACI absorbs the majority of the risk, its customers also share in the risk through the use of co-insurance and deductibles. This structure is important because it ensures that EULER ACI clients maintain effective credit management practices throughout the course of their policies.
DCR Removes American Credit Indemnity Company from
Rating Watch and Reaffirms ‘A+’ Claims Paying Ability Rating
New York (January 5, 1997) -- Duff & Phelps Credit Rating Co. (DCR) has taken American Credit Indemnity Company (ACI) off of Rating Watch--Uncertain and reaffirmed the company’s claims paying ability of ‘A+’ (Single-A-Plus). The reaffirmed rating level reflects the company’s current level of capitalization, stabilized operating results, prudent underwriting, continued major share of the North American market, and recent acquisition by the Euler Group (Euler) and Securitas Capital, LLC (Securitas). DCR believes that ACI will benefit from the new ownership structure in terms of its overall underwriting approach, marketing strategy, access to reinsurance, and greater ability to enter international markets.
Credit insurance provides coverage for a company’s potential credit losses from domestic and export customers. Such coverage improves a company’s overall creditworthiness, allowing it to actively expand its global sales efforts and obtain additional financing.
Started in 1893, ACI is North America’s leading business credit insurer and the oldest insurer of this type in the world. It writes approximately 70 percent of the business credit insurance in North America, covering more than $70 billion of annual sales. The company is licensed in all 50 U.S. states and in several Canadian provinces, and operates through offices located throughout the U.S. and Canada. In early 1997, ACI acquired Trade Indemnity Canada (a Euler affiliate), adding to its asset position and bolstering its already significant market leadership in North America.
In October 1996, ACI was jointly acquired by Euler and Securitas. Euler is the parent company for several leading credit insurance companies worldwide. On a consolidated basis Euler is the largest credit insurance entity in the world, with net assets of $1.2 billion as of year end 1996 and premium income in 1996 of $890 million. Securitas is a global investment firm with $505 million of committed capital from Swiss Reinsurance Company and Credit Suisse Group dedicated to equity investments exclusively in insurance and related companies. DCR believes that Euler and Securitas add value to ACI through their combined industry knowledge and expertise, global marketing reach, strong relationships within the insurance industry, and emphasis on creating highly efficient infrastructures.
As of September 30, 1997, ACI had a statutory surplus of $75.0 million, excluding unearned premiums of $43.6 million (based on policies expiring in one year or less). In the first three quarters of 1997, ACI wrote $65.8 million of statutory net premiums, a 30 percent increase from the year-ago period figure of $50.7 million. Statutory net earned premiums in the first three quarters of 1997 were $56.9 million, a 9 percent increase over the $52.3 million in the prior year-to-date. Its loss experience recently improved, with total 1997 year-to-date statutory losses of $31.5 million, a decrease of 13 percent from the prior year-to-date.
To build its infrastructure for further growth, ACI has continued to invest significantly in the business and thereby incurred high expenses. In the first nine months of 1997, statutory expenses were $34.5 million, a 25 percent increase over the same period in 1996. However, expenses as a percentage of written premiums during the first three quarters of 1997 actually fell by 2 percent compared to the year-ago period. In the long run, DCR believes that the partnership with Euler will help ACI control expenses given Euler’s experience in developing significant operating efficiency and the expectation for the two entities to realize certain synergistic benefits.
The improved results and outlook for ACI partly reflect the strong senior management team the company put in place during the past year. This new group is led by Doug Brunner, the president and chief executive officer. Mr. Brunner has more than 27 years experience in the trade credit insurance industry, primarily at Trade Indemnity PLC, the trade credit insurance industry market leader in the United Kingdom, which is currently owned by Euler.
ACI has an effective underwriting system, which comprehensively ranks industries and companies according to a detailed array of performance parameters and properly guides ACI’s prudent underwriting decisions. ACI has a well-developed risk management division, which carefully monitors the company’s insured exposure diversification by industry, geography, and creditor. ACI’s total insured risk is further controlled by the company’s limiting the average life of its policies to one year or less, thereby allowing it to run off exposure from problem credits quickly. ACI also has an extensive claims management department, which includes a loss mitigation staff whose early intervention substantially reduces ACI’s ultimate insured loss.
Finally, with the help of the Euler alliance, ACI has developed a superior excess-of-loss reinsurance program to supplement its capital base and protect against catastrophic losses. The program covers domestic, export and political risk, and is particularly effective in limiting ACI’s risk from the bankruptcy of large debtors. The program is supported by several leading reinsurance companies, including SCOR, ERC Frankona, Cologne Re, and Swiss Re.
DCR Contacts:
David Polson
(212) 908-0220
polson@dcrco.com
Andrew B. Jones
(212) 908-0205
jones@dcrco.com