To Accept or Not to Accept? Considerations in providing credit insurance

07/05/2018 |  Graham-Rosen Meital, Michelson Noam
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The Financial Markets and Financial Stability
 

Abstract

 

In this paper, we study credit insurance in Israel between 2010 and 2017, using a unique database provided for our use by ICIC—the Israeli Credit Insurance Company, the leading credit insurer in Israel. The research aims to determine what factors impact on the acceptance rate (the amount of insurance provided relative to the amount of insurance requested). This is the main parameter set by ICIC, and it reflects the pricing of the risks in each transaction. We find that the acceptance rate is impacted on primarily by the extent of the insurance company's exposure to the buyer's country, but also by the size of the insured company, the risk of the buyer with whom the company is transacting, and by the global real economic situation. These factors impact differently on domestic buyers and on buyers abroad, apparently due to differences in information on the two types of buyers. In addition, we examine the scope of exports insured by credit insurance and characterize them by geographical distribution and by risk levels. Finally, we examine—for the first time in Israel—suppliers' credit and find a strong link between suppliers' credit risk and real activity.