Euler Hermes, the largest credit insurer in the channel has issued a profit warning after being hit by the bankruptcy of Woolworths and a steep rise in claims that will drag down its profits for the year.
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The firm which underwrites around 70% of credit provided in the UK channel said this morning that it expects profits for the final three months of 2008 to be in the region of €100m (£84.9m) to €110m.
Since the collapse of Woolworths last week Euler Hermes has registered claims declarations on this risk largely in the UK and Germany which will weigh heavily on its financials.
“After a full review of all outstanding credit limits, Euler Hermes expects a global negative impact of 15 points on its Q4 loss ratio,” it added.
This compounds “a general worsening of the claims environment in the last quarter 2008. Euler Hermes estimates a negative result in Q4 2008 and reviews its outlook for its full year profit to between €100m to €110m.”
A fall in consumer spending and tightening financial conditions will continue to weigh heavily on the liquidity of corporates and economies in general, Euler added.
“Euler does not expect any major improvement of the actual claims environment in the coming months,” it claimed.
As revealed by MicroScope recently the cost of credit insurance for resellers has doubled in the last year and with profit warnings from Euler and a rise in claims across the board that price will only increase.
It was inevitable that premiums would continue to rise but that was understandable in the current climate, said Eddie Pacey, director of credit services for Europe at Bell Microproducts.
This point was echoed by Nick Tiltman, credit director at Computer 2000 but he said resellers and distributors with a history of low bad debt should not accept a rise willingly and negotiate.