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Can domestic trade credit insurance contracts be effective collateral for banks? A quantitative study of the Italian market

Author

Listed:
  • Flavio Bazzana
  • Giacomo De Laurentis
  • Raoul Pisani
  • Renata Trinca Colonel

Abstract

A domestic credit insurance contract is a policy that covers the risk of the non-payment of future commercial credit as a result of the failure to pay within the agreed terms and conditions (protracted default) or the insolvency of the buyer. To evaluate the effective level of financial protection offered by trade credit policies, we collected a database of contracts issued between 2006 and 2013 by a number of Italian insurance companies, which account for 80-85% of the Italian market. We find that, to be considered as able to mitigate credit risk, the policies must have their contract clauses changed. In that case, such a policy, if accepted by the supervisory authority, could permit banks to reduce the capital requirement connected with the discount of trade credits. These results are particularly important for insurance companies.

Suggested Citation

  • Flavio Bazzana & Giacomo De Laurentis & Raoul Pisani & Renata Trinca Colonel, 2020. "Can domestic trade credit insurance contracts be effective collateral for banks? A quantitative study of the Italian market," The European Journal of Finance, Taylor & Francis Journals, vol. 26(13), pages 1239-1252, July.
    • Handle: RePEc:taf:eurjfi:v:26:y:2020:i:13:p:1239-1252
    DOI: 10.1080/1351847X.2019.1627377
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