Coface provides surplus profit in an unpopular industry

In a specialized market, Coface is a global leader in trade-credit insurance with significant competitive advantages

The majority of people are unaware of trade-credit insurance, but without it, a significant portion of the world economy would cease to exist. When selling goods or services on credit with longer payment terms, like 30 or 60 days, trade-credit insurance shields businesses from the risk of customers not making payments. Insurance can help cover a portion of the loss if the client runs out of money or just won't pay. This risk-absorbing buffer is essential for the economy as a whole, not just for businesses. The cascade effect on the rest of the economy can be extremely detrimental if one big client fails to pay its suppliers.

A great case study is the demise of the construction company Carillion. It owed about £2 billion to its 30,000 suppliers when it fell apart in 2018. Only £31 million of this was covered by trade-credit insurance, according to the Association of British Insurers the week after it failed. The loss had to be absorbed by other suppliers, many of which were small companies with an average debt of 141,000. The collapse caused thousands of small businesses to fail and sent shivers down the spine of the UK construction industry.

An oligopoly rules the market for this kind of insurance, with the "big three" firms holding 75% of the worldwide market and several smaller, state-backed firms making up the remaining portion. The French government established the Compagnie Franaise dAssurance pour le Commerce Extrieur, or Coface (Paris: COFA), in 1946 to offer exporters a guarantee supported by the government. The group changed from being a state organization to a publicly traded international player over the ensuing decades, growing to become the third largest of the Big Three. At the moment, it is situated behind Allianz Trade and Atradius. The latter holds about 34% of the market.

Operating an international trade-credit business in today's globalized world necessitates a substantial amount of data, proprietary data, and knowledge of international trade risks. Coface covers 200 countries through its partners and conducts direct business in 100. Early state support enabled it to develop the data required for profitable and effective underwriting globally. With more than 70 million corporate datasets, the organization has the size and scope to sustain its competitive advantage. Coface's data advantage has been strengthened over the last five years.

How business intelligence is used by Coface.

The management team of Cofaces introduced a new product in 2017 to increase revenue from the group's extensive corporate credit database. In order to cross-sell the data it collects during regular business operations, the company established a business information unit. Large international corporations can test the resilience of their supply chains with the help of data on the financial health of various businesses. Additionally, the data can be used by customers to decide whether to purchase trade-credit insurance in the first place or handle the risk internally. Although it may appear that the company is giving away its best assets, the extra data collection, analysis, and dissemination has improved its own databases.

Cofaces' underwriting margins are cited by analysts at investment bank Berenberg as evidence of its growing competitive advantage. The company reported a combined ratio (a crucial profitability metric for insurers) of 71.9 percent net of reinsurance during the first nine months of 2025, which is lower than Allianz Trades' 82.1 percent. This indicates that the company is significantly better at underwriting risk than its larger peer (anything below 100 percent indicates the company is underwriting profitably). To put these figures in perspective, last year the global reinsurance market as a whole reported a combined ratio of about 90 percent, with personal lines and property and casualty reporting ratios closer to 97 percent.

Since 2017, the number of employees has increased to about 16% of the group's 4,800 total, and the data services business has grown to 4% of group revenues. Management originally set 2027 as the division's break-even year, but as it increases investment, it is now pushing that date back. According to Berenberg, the market's current size and the rising demand for credit data could result in an annual revenue growth of up to 15%. Although trade-credit insurance will continue to be the company's main source of income for the foreseeable future, Coface may be able to make a sizable profit from the sale and collection of data thanks to recurring fees and low risk.

Is it wise to invest in Coface?

With significant competitive advantages in a specialized market, Coface is a well-established player. Additionally, it is supported by Arch Capital, a sizable international reinsurer with £70 billion in assets and a market capitalization of £33 billionmore than ten times that of Coface. In 2020, in the midst of pre-Covid uncertainty, Arch bought a 29.5 percent share in Coface from Natixis. The company's ability to compete with Allianz Trade, which has £1 trillion in assets and is supported by the Allianz parent group, has surely been aided by the stability that comes with having Arch as a shareholder.

Despite all of these desirable attributes, Coface's valuation is comparatively low. The shares are currently trading at a price-to-book (p/b) ratio of 1.2 and a price-earnings (p/e) ratio of just 9.4 for 2026. For an insurer this profitable, a p/b of about 1.5 times would be more suitable. Additionally, Berenberg's analysis shows that since 2020, it has distributed 90% of its earnings on average and set a dividend payout ratio of 80%. Current estimates suggest that in 2026, the yield may reach 9.2%.

Although it may not be the most exciting product available, trade-credit insurance is an essential component of the economy and a highly lucrative enterprise for Coface. Investors ought to pay attention.

Coface price graph for shares.