Guarantee and Credit Market

Nature of the service and the product market

The performance of the service of insurance coverage consistes in the assumption of a risk, on the part of the insurance firm, to which the insured would normally be exposed.

The two general categories into which the possible risks are divided and consequently the two categories of private insurance possible, group themselves under the headings of "life" and "non-life insurance". The non-life insurance area is subdivided on the basis of the cause of the damage and on the type of property, protected in various other areas.

The Concordato works in the sector of non-life insurance and insures specifically against risks assigned to the Guarantee and Credit areas.

The two areas have some characteristics that make them different, reguarding both offer as well as demand. From the point of view of the offer, while presently there do not exist substitute insurance instruments, for those offered by insurance firms in the Credit risks area, on the contrary, in the area of Guarantee, insurance firms are in competion with the banking sector, which offers instruments which can absolutely replace those of the insurance sector, as a result of the law No. 348 of June 10, 1982.

From the point of view of demand, while Credit insurance is stipulated by the creditor in his interest and for protection against insolvency in the face of all his debtors comprehensively, Guarantee insurance is instead stipulated by the debtor on the guarantee of his presentation of services towards the owner, which in almost all cases is represented by Public Administration agencies, which determine and impose contractual guarantee conditions (police wording) to which the companies and the contractors must conform. Especially as far as reguards the contract relative to so-called guaranty or fidejussor insurance , the contract is stipulated by the subject who is obliged to furnish security or give a fidejussor guarantee in favour of private parties, or Public Administration, which therefore assume the role of the beneficiary of the contract.

Falling into the guarantee area are those insurance contracts which accomplish the same legal-economic function ( and are therefore substitutes) of a security guarantee in cash or in other real property, or of a fidejussor guarantee that a specific subject ( the contractor of the insurance) is obliged to make, 1) to guarantee his future pecuniary obligations, or 2) against failure to meet assumed liabilities, or 3) against indemnity claims, or 4) for non-performance of a contract (penalty forfeiture).

Guarantee insurance is given as an additional guarantee with respect to the main liability. Falling within the area of Guarantee are therefore those guarantees for liabilities that could arise at the expense of a specific individual ( the contractor of the insurance) whenever he breaks a primary obligation to undertake something, or not to undertake something, or to give something, which nevertheless have their basis in a legal arrangement or in a contract. Guarantees having a purely fiduciary nature do not fall within these insurance guarantees, meaning those that give guarantees in connection with financial operations not provided for by law and which are not referable to economic agreements of a contractual nature, juridically efficient and valid and disciplined in a standard way.

Nevertheless insurance in both areas presents homogeneous and specialty characteristics with respect to other insurance sections, characteristics which are acknowleged by the same control regulations of the ISVAP. Insurance in the area of credit and guarantee is disciplined inter alia by the ISVAP memorandum No.162 of October 24,1991, which gives instructions with special attention to the criteria of risk assumption and the stipulation of contracts.

In particular the main characteristic of such sections is the individual nature of the separate relationships with the client. It, in fact, is essentially represented by a client-firm relationship, which given the high variability of the riskiness of the insured subjects or beneficaries of the insurance, requires a precise evaluation of the credit worthiness of each of the single liable subjects, on the basis of whose assets the guarantee or credit is furnished. For this reason the ISVAP itself requires that the insurance companies active in the two sectors undertake complete preliminary technical / formative documentation, capable of highlighting both the nature and the characteristics of the risks to be guaranteed, as well as the patrimonial , financial and economic soundness of the indebted individuals ( point 4 ISVAP memorandum No. 162); and especially for risks of significant size to divide the risks themselves, making use of the appropriate instruments of co-insurane and of re-insurance ( point 5 ISVAP memorandum No.162).

Companies are additionally obliged to communicate to ISVAP annually during the transmission of their financial year balance, their technical criteria adopted in this connection, for the purpose of allowing highlighting of the amounts of risks that actually remain charged to the individual companies.

Finally ISVAP asks that up-dated statistics relative to the insurance (capital guaranteed, understood as the amount for which the company is exposed with respect to each client, premiums, damages/insolvencies) be kept; and also that the firms point out in suitable records all the subjective and objective data relative to each risk assumed.

The Concordato was established especially to comply with the provisions and regulations described.

On the other hand, in the two areas of guaranty and credit, whose characteristic qualities have already been described, firms are obliged to collaborate in order to obtain the necessary information for risk evaluation and credit worthiness of the covered subject. The solvency and reliability risk which is the base of the insurance in question can in fact only be determined case by case, and only with the aid of the common experience of the firms in the sector.

Methodologies like those described are found on the other hand also in the banking sector, especially because of the affinities between the activities carried out by the two sectors, above all in terms of risk.

Direct premiums written by the 50 companies operating in the surety class in year 2010 amounted to € €519.260.000, ( + 2,4 % in respect of 2009).

Direct premiums written by the 26 companies operating in the credit class amounted to € 396.202.000 ( + 7,1 % in respect of 2009).

As far as Concordato is concerned , in year 2010 the Partecipants booked for surety business to € €276.414.000 ( + 2,3% in respect of 2005).
In the credit area premiums amounted to € 54.780.000 ( + 8,2% in respect of 2009).