Credit insurers vow not to pull plug on retailers

Trade credit insurers have insisted there will be no repeat this year of the large scale retail credit withdrawal that battered the sector in the second half of 2008, despite HMV’s cover being cut.

Credit insurance giants Euler Hermes and Atradius both told Retail Week they are upping their cover compared with last year, despite the challenging year that lies ahead as retailers face a perfect storm of rising costs and falling consumer confidence.

Atradius head of risk for UK and Ireland Marc Henstridge said: “Last year our exposure to retail increased by more than 30% compared with 2009 and we expect to grow our exposure on the retail sector this year.”

An Atradius spokeswoman said the big difference between this year and 2008/09 - when scores of retailers had their cover pulled in the recession - is that there will not be the same kind of “wholesale withdrawal” when insurers removed cover across swathes of retail.

The withdrawal of credit insurance was said to have played a major part in high-profile retail failures including Woolworths. Retailers can find themselves crippled because they can no longer obtain stock from suppliers unwilling to trade without insurance.

But the Atradius spokeswoman said credit insurers have “done a lot in the last couple of years” to develop better relationships.

Mark Wyatt, director of risk at Euler Hermes - the firm thought to have scaled back cover on HMV -said it would “categorically” not be reducing cover on retail in general this year compared with last, “unless the economy falls off a cliff”.

“At the moment things are pretty good [across retail],” he said. “We’re underwriting a lot more risk than we were 12 months ago.”

Wyatt, who declined to comment on HMV, maintained the home and furniture sector is not a concern in 2011, whereas in 2008 “we were all running scared” in light of collapses such as MFI then Land of Leather.

However, both insurers said there will be exceptions and decisions will be made on a case-by-case basis.

After warning on profits and a potential breach of banking covenants this month, HMV said that credit insurers are “reviewing the level of cover” across the group, but insisted: “We continue to maintain excellent relations with suppliers and have had no difficulty in obtaining stock.”

BRC economist Richard Lim said: “We hope the problems of 2008 regarding retailers, suppliers and insurers have been learnt from.”