In a recent interview with Le Revenu, Xavier Durand, CEO of Coface, shares his thoughts on risk management, current economic challenges and the place and role of data and innovation in risk analysis and prevention.
You lived through the 2008 financial crisis, then the Fukushima accident in Japan (2011), the Covid crisis and wrote your book ‘Daring to take risks’1 in the aftermath. What lessons have you learned from all this?
Xavier Durand: We all have perceptions of risk zones. But it's very difficult to predict crisis because events are multifactorial. Looking two or three years ahead is less important than knowing how to manage the events that will occur in the next three to six months.
In 2008, during the great financial crisis, governments hesitated to intervene to save a bank because of moral hazard. They let Lehmann Brothers go bankrupt. When Covid came along, they did whatever it took. With a boomerang effect, because their monetary and fiscal policies allowed zombie companies to survive. Now nature is reclaiming its rights. In most developed economies, governments are withdrawing their support measures and business failures are becoming the norm. European governments can no longer afford to pursue expansionary fiscal policies.
The current fiscal imbalances are generating debt and instability. Our clients are aware of this, and we are also seeing more and more new clients looking to protect themselves.
The only credit insurer able to bring together information from all countries in a single database
How do you manage to insure businesses at a time of heightened risk?
Xavier Durand: Our business model is based less on our ability to anticipate than on our ability to manage. We can anticipate that there is going to be a pandemic, but that doesn't help us to make 13,000 credit decisions a day in 200 countries with 5 million counterparties. Every country and every situation is different. We publish a gobal country and sector risk map, but that doesn't say what is going to happen for a given company. The impact of a macro-economic phenomenon on a company will be completely different depending on its place in the value chain.
We have built a unique architecture that we are constantly improving.
We are the only credit insurer able to bring together information from all countries in a single database. We are connected with each of our 100,000 customers. It used to take five days to make a credit decision. We have reduced this time to half a day, with a much greater degree of precision and speed. Today, 60% of decisions - the smallest, most repetitive ones - are taken automatically. We study almost all the credit insurance files submitted worldwide, and the core of our added value is data. We invest several tens of millions a year in new technologies. We have hired 500 specialists in four years in our information activities, one tenth of our workforce. These investments are fully covered by the increase in sales of these services. We have already won over 15,000 customers who come to us solely for our data. This is a fast-growing market.
The credit insurance market is highly competitive. We invoice in tenths of a percent of guaranteed sales, and prices have been falling for nearly ten years. All the efficiency gains achieved through technology have in fact been passed on to customers.
What is your ability to say no?
Xavier Durand: Our job is to help companies make the right commercial decisions and avoid non-payment, one of the main causes of business failure. Our job is also to know how to say no when we think the risk is too big.
Our retention rate remains very high, at around 93%.
Do you foresee a risk of recession, and should we expect your growth to slow further, particularly given the fall in inflation?
Xavier Durand: We expect a slowdown rather than a recession. We charge a percentage of sales. When inflation picks up, that's embedded growth. When it falls, it's a decline. This decline has been visible since the end of last year. But this is a purely nominal effect on our accounts.
What's important is the stability of our customer base. And our retention rate remains very high, at around 93%. Our sales therefore evolve in line with the economy, with the addition of new business.
Is it sustainable to distribute 80% of your profits?
Xavier Durand: We have one of the highest returns in the SBF 120 index. If you add up our share price performance, it's as much as 17% a year since I took over nine years ago.
Our payout ratio has not prevented us from improving our solvency, which is currently above our target range.
We also rely on reinsurance. Our rule is that a major claim cannot cost more than 3% of our equity. We transfer a quarter of our turnover to reinsurers and retain three quarters of the risks.
The only credit insurer listed on the stock exchange
Does maintening the rating make sense? Could Arch Capital take control?
Xavier Durand: That's a question you should ask Arch Capital. The arrival of Arch Capital (in 2020 with 29.9% of the capital and four seats on the Board of Directors) has not changed our strategy. It is an insurance, reinsurance and mortgage credit group. It has behaved like a financial partner ever since it took a stake.
We are the only listed credit insurer. Our expertise is credit risk management, and we are working to further strengthen our range of services, from information to insurance and debt collection. To do this, we need to keep innovating. This is a real angle of differentiation and one of the pillars of our new Power the Core strategic plan.
When I joined Coface, we had value investors, then we attracted those looking for high dividends. Now we're also starting to appeal to those who prefer growth stocks and are interested in tech.
Interview by Aline Fauvarque for Le Revenu - November 2024
1- Oser le risque : Le management dans un monde incertain. 112p. Edition Hermann. Janvier 2021. 16 euros
