More global government infrastructure projects leading to a higher demand for credit insurance and surety have increased the need for risk management of exposures, according to a study by Swiss Re.
The study, "Credit Insurance and Surety: Solidifying Commitments," found that values secured through credit insurance and surety bonds last year totaled about $2.9 trillion, or 6.5 percent of the world's gross national product (GNP).
Credit insurers and surety companies are particularly active in niches including export trade, domestic sales to retail, and construction sectors and contractors doing business with public institutions, according to the report.
Total premiums for credit insurance in the United States last year were $6.9 billion. Credit insurance, the study said, is more established in Western Europe than in the United States. Demand for credit insurance is driven by growing international trade.
Global surety premiums totaled an estimated $7.9 billion in 2005, more than half of which were written in the United States. The business is tightly regulated and characterized by very stable growth, the report said. The largest surety writers are general insurers that typically concentrate on their domestic markets.
The surety business has substantial growth potential in Asian and European markets and the Middle East where there has been less penetration, the report said.
It added that this is particularly true once these markets develop legal and regulatory frameworks for surety.
Most of the rising demand for surety stems from government infrastructure projects, the study found.
New funding programs such as the public financing initiatives (PFIs) in the United Kingdom also will create opportunities for surety writers, such as enhancing creditworthiness and guaranteeing the performance of contractors.
According to the study, controlling and managing risk exposure is key to success in credit and surety, and in the wake of past adverse experience, credit insurers and surety companies have invested heavily in strengthening their risk management capabilities.
Their enhanced risk information has improved portfolio transparency and facilitates portfolio steering and risk management. This better enables companies to meet future economic challenges, according to the report.
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