Coface SA

PAR:COFA

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the conference call for the presentation of Coface results for the period ending March 31. [Operator Instructions] As a reminder, this conference call is being recorded. Your host for today's conference call will be Mr. Xavier Durand, CEO; and Madam Carine Pichon, CFO. I would like to turn the call over to Mr. Xavier Durand. Sir, you may begin.

[Xavier Pascal Durand, Chief Executive Officer]

Thank you, and good evening, everybody. Thanks for logging into this call. Today, we're reporting the first quarter 2020 numbers. As you know, this is a particular environment in which to do so because of the crisis -- the coronavirus crisis which is ongoing. It's a bit of an irony that this crisis started just as we were launching our Build to Lead plan. This quarter will be a little special in that it both reflects the strong performance that we've had in the business in 2019 and the strong momentum that we had going into the first quarter this year, but also it's starting to reflect the first impact of the COVID crisis. I think this crisis is an incredible test to our agility and our ability to react, and I'll comment more on this over the next few pages. But in summary, we're reporting today net income of EUR 12.7 million. Our turnover on the back of a strong 2019 reached EUR 370 million year-to-date, which is up 0.9% at constant FX and perimeter. You'll see later that new production and retention were both at high levels, actually at a record level in the recent history of Coface.Some good news. Services are growing by about 12%. And on the other hand, the activity of our clients continues to slow down. And that's been the case now for about 2 years, and we expect that to continue in the future. The net loss ratio for the first quarter is up 14.5 points versus the first quarter of last year and comes in at 57.1%, bringing the net combined ratio at 86.8%. The gross loss ratio at 15.3 points up from last year is driven by particularly one large loss, which is pre the COVID crisis. This is an industry-wide loss where Coface pretty much took its market share's worth of the loss. But also, we see in this -- in the total loss ratio the anticipated growing frequency and severity that we are expecting to see in 2020. The net cost ratio is down 2.2 points, coming in at 29.7%, reflecting, I think, a very strong cost discipline from the business as we've been very prompt at reprioritizing both costs and projects.The financial income comes down to EUR 2.7 million for the quarter. We had hedges in place, and we've been extremely quick at derisking some of the parts of the book, which has mitigated the financial impact of the crisis on the portfolio. At the same time, we've been also very diligent in increasing significantly the liquidity, which was about 7% of the book, to 21% at the end of the quarter. So net income at EUR 12.7 million is down 65.2% versus last year. As you know, we have decided to cancel the dividend, which has, from the point where we started at last year, increased our solvency ratio by 13 points. At the same time, the loss of value of some parts of our portfolio created a negative 8 points on the solvency ratio. But I just want to stress that we still are in a very strong position as we go into this crisis, much above the target range that we had defined for the business. Return on tangible equity comes in at 3% for the quarter. Page 5 really gives you a bit of a view -- our view on the economy. Now these forecasts are about 2 to 3 weeks old. And obviously, this is a very dynamic situation that we're faced. But pretty much, we anticipate '20 to be a year of recession globally at minus 1.3%.And when you look at what it means for insolvencies around the world, it means a very steep, very dramatic increase in corporate insolvencies. We forecast 25%. These numbers have been made public. You can see that they're different in terms of the different regions of the world: least impact in Asia Pacific, probably pretty high in the U.K. and the U.S. and still double digits -- strong double digits in Europe.We have been very quick to grasp what this meant, and you can see on the right-hand side of the chart a quarterly layout of the number of prevention -- risk prevention actions that the business has been leading over the course of the last 4 years. And it's pretty clear that in the first quarter, our total number of prevention actions more than doubled from what it was last year, actually almost tripled from what it was last year. We have been very, very, diligent in taking a very selective view at the sectors and the countries and the different places in the value chain where we think we will see the most impact on the risk side.So going to Page 6. I think, as I mentioned, this is an incredible test to our agility. I'm very proud actually of the way the business has responded so far. I think the culture we put in place during the Fit to Win plan in the last 4 years has served us well. We've demonstrated agility in literally a day as 95% of the employees around the world went from working in the office to working from home. And there's been really no disruption in quality of service that we deliver to the clients. As you know, in these circumstances, we are as busy as ever. Our underwriting teams, our sales, our account management teams, our product teams, our IT teams, everybody is working hard to make all the changes and the adaptations that are necessary.We have, as I said, tripled in the number of actions that we've taken in March, more than double in the first quarter. And we've also started both repricing actions and product adjustments. Of course, this crisis came late in the quarter, but I think the whole business is on the ball.We've also engaged multiple discussions with the governments to support the economy. We have finalized an agreement with the German government, which was signed last week, which pretty much caps our downside in Germany. Of course, it also limits our upside. And we'll have more details probably about this in the Q&A.The French government has relaunched a product that was in place during the 2008 and 2009 crisis, which is called CAP and CAP Export. It's more complex, but the goal is to pretty much replace the limits that credit insurers might reduce or cancel by amounts that would be supported by the state. So it does not impact our P&L, but it does help the industry. And there's ongoing discussions with other European governments as we speak. And I could mention in particular The Netherlands or Belgium.We've been, as you will see, quick to implement cost efficiency plans. We've redefined very quickly our Build to Lead project priorities in the face of the current environment, and I'm happy to say that the business, again, has been responding well. We are actually able, as of today, to write these French government programs, which required, for example, just a serious amount of programming, into our systems, and we've been able to do this remotely.The turnover, as you can see on Page 8, is up 0.9% at constant FX and perimeter. Trade credit insurance was just slightly up at 0.2%. We've seen better new business, better retention but lower client activity.In terms of other revenues, they're kind of flat. I think factoring after a couple of years of decline is pretty much flat this first quarter, if we exclude one-offs. And as I mentioned, service revenues, which includes information sales, are up 12% versus last year. And you can see that fees as well are up 5.2%.On Page 9, if we look at the geography of the growth, you see that Med & Africa continues on a growth trend in the first quarter. That's pretty much in line with what we've had in the past few quarters at 5.7%. Same story in Central Europe, where we have been very, very active in managing the risk over the course of 2019. Pretty much the same in Northern Europe, which includes Germany, where insurance revenues, as you can see, are up 3.4%. In these places, Germany in particular, the whole industrial sector, particularly the auto sector had already been impacted before the crisis by a relative slowdown.Good volume in North America at 7.1%, reflecting the efforts that we've carried out in the past years to repurchase our agents and to improve our sales. Asia Pacific, as you know, is the region which had been impacted by the COVID crisis first. So we had a lockdown in Wuhan and the whole Hubei region. We've had impacts in Hong Kong and other parts of the world. So I think part of that is reflected in the numbers for Asia Pacific.And then for Latin America, we have been constantly prudent over the past year. And after signing some very large international deals back in 2018, 2019 was a year where we focused mainly on risk, which explained the numbers for the first quarter.The one region where things are a little bit different is Western Europe, where our billing system is a little bit different. Our clients make turnover declarations to us on an annual basis, so we have to reserve and anticipate constantly on the expected level of turnover that our clients will be declaring to us over the course of the next 6 to 12 months. And as such, we are recognizing here a 4.5% drop, expecting lower client activity in the upcoming quarters.On Page 10, you can see the usual slide which shows the geography of our volume. And as I mentioned, you can see that new production at EUR 51 million was pretty much at a record for the last 4 years. Retention rates at 94.3%, again, is at a record and very strong. The price effect, which, as you know, for years and years has been negative 2% -- 1% to 2% every year, is actually better, slightly negative. This is mainly renewals that we've done towards the end of the year or beginning of this year. So we can already see some of the impacts of the repricing that have been carried out. And then in terms of the volume, which is the underlying growth of the turnover of our own clients, while you can see that this is the lowest score in a number of years and it's consistent trend over the last 2 years, we do expect that to deteriorate further, as I explained, over the course of the coming quarters.Going to the risk slide. You can see on Page 11 that the gross loss ratio has increased by 15 points after, I would say, 4 quarters of being pretty stable. We've had, as I explained, one large market loss where I think we were -- we have been impacted to the tune of our market share. This is pre COVID crisis. And we've also, as you can see on the bottom right-hand side of the chart, started booking the underwriting year 2020 at almost 77% reserve rate, which is higher than the usual 71% that we had for the prior years, reflecting an expected higher level of losses going into 2020. This is consistent with our reserving policy that we have applied throughout the years. At the same time, the recoveries from prior years, you can see the 24.4% is lower than the 33%, 34%, 35% that we had in prior years. And this is driven by the large loss that I was mentioning earlier.On Page 12, you see the geography of our losses. And I'll skip Page 12, which is the annual loss rate because I think the story is clear when we go to Page 13, which usually we put in the back of the pack, which shows the quarterly evolution of losses. And pretty much, you can see that, on the bottom, we have the most stable region. So Med & Africa, starting from the bottom right, had a very stable quarter. As you know, the COVID crisis hit in March, and so we clearly haven't seen an impact in Med & Africa at this stage.Central Europe continues to perform very well at 35% for the same reasons. Northern Europe, pretty much at its historic level of 43% through the first quarter. You can see for Western Europe the impact of the large loss that I was mentioning, which is about 40% increase from the prior quarters.Latin America at 70% is pretty much in the range of the loss ratio that we've seen over the course of the last 6 to 9 months, continues to be a difficult environment to operate in. Asia Pacific performed well. As you know, we were impacted first in Asia by the COVID crisis, and actually, the number for the first quarter came pretty well.North America continuing to, I would say, hover around the 50% mark with some volatility per quarter. We're at the end of the cycle, and I think we're seeing some of that. So bringing the total group number, as I explained, to 55% from 46% at the Q4 2019.If we go to Page 14 and talk a little bit about costs, I think you can see that the total cost for the business is down 0.3% in euros from first quarter last year. So net-net, it's a cost reduction. You can see in particular that the external acquisition costs are down from EUR 41 million last year to EUR 38 million, and this is due to the efforts that we've made to repurchase our distribution in the U.S. As you know, we've repurchased our agents, lowering the level of external costs. At the same time, we internalized these sales forces, driving up our internal costs. But as you can see, the -- one doesn't offset the other, and as a result, our cost is down.Given that we have underlying inflation in terms of our workforce and other costs, I think it's a pretty good result. And this brings our total cost ratio down 1% before reinsurance to 32.3% from 33.2% last year. As I mentioned, our net cost ratio is 29.2%, which is actually, I think, one of our best performances so far.So with that, I'm going to turn it over to Carine Pichon to take us through the next pages.

[Carine Pichon, Group Chief Financial & Risk Officer]

Thank you, Xavier, and good evening, everybody. So let's continue on reinsurance.Reinsurance results reflect higher loss activity. So the cost of reinsurance has significantly decreased, as you may see at the bottom of the slide. We went from a little less than EUR 27 million in Q1 '19 to a little less than EUR 9 million in Q1 '20.What is new for this quarter is that we have signed German state reinsurance scheme. It has very immaterial effect on this Q1 so you won't see an effect for this quarter, but we anticipate it for the quarters to come.Looking at net combined ratio, Slide 16. It stands at 86.8% on a rising loss ratio. As already said, net cost ratio has improved to be at 29.7%, so more than 2 points of decrease compared with Q1 '19, but loss ratio has increased up to 57.1%, reflecting higher large losses explained and also expected increase in defaults.So we are now on the financial portfolio. You know that our investment policy management is to be, as much as possible, resilient, but we also have decided to act and to manage very agile way of financial portfolio and -- quite early in the crisis, meaning that we have derisked our portfolio. We have trimmed our high-yield bond exposure. We have increased liquidity to 21% of investment portfolio. As you may see, equity exposure has been reduced by disposals and market movements. Knowing that -- hedges we have since a long period of time clearly have provided good protection during that period of time. These quick actions have protected or reinforced our solvency, reinforced our liquidity and with a very limited P&L impact. You may see that on Slide 18 just after.You see that the net investment income, which was in Q1 '19 at EUR 5 million, is down at EUR 2.7 million. So most of the gap is related to all this movement we have done. So very few impact on the P&L and on the -- all measures taken. And to be mentioned, accounting yield, as you may see, it is at 0.3%, not so far from last year. Clearly, with higher liquidity, it's -- we may anticipate a lower yield.In Page 19, you have our net income, so EUR 12.7 million. Current operating income down because of higher loss ratio and also lower financial income, which I've just mentioned. Something also you may see at the bottom of the slide, our tax rate is at 50%, so increased compared with the 29% of Q1 '19, mostly impacted by some large losses which are located in some places where we cannot activate some deferred tax assets. So that's the reason of this increase.Page 20 is now our return on average tangible equity, which stands at 3%. You see the dynamic -- the walk at the bottom: mainly a decrease coming from higher loss ratio, which is in technical results; some impact on financial result plus also on tax. So we went from 9% to 3%.In equity, which is at the top of the slide, a decrease of equity mainly linked to revaluation reserves, which is the unrealized gain and losses on financial instrument. We lost EUR 74 million of equity-related to this financial instrument, which is more or less the same positive gain we had in '19. So we can say that we offset gain coming from last year.Having said that, I'll let Xavier talk about key takeaways and outlook.

[Xavier Pascal Durand, Chief Executive Officer]

So as I was mentioning earlier, this is a crisis that really has no precedent, probably the steepest decline in global GDP that we've had since the last World War. There's really no precedent and no historical reference that we can actually utilize to model this.Our net profit is down this quarter, but it's just beginning to reflect the impact of the crisis. We've seen that the profit is down mainly due to higher claims activity and also the anticipation of coming higher claims. We know that the lockdown that is taking place all over the world will negatively impact the activity level of our clients. So it will have an impact on the top line as well.As I mentioned, we've been very, very quick to take a number of actions all over, I would say, the different areas of the business to mitigate, as much as we could, the impact of the current crisis for our clients because that's our role and for ourselves. We've doubled the prevention actions year-to-date. We're driving the repricing of the portfolio. We've implemented some very strict cost controls. We're driving service revenues, which create no need for capital and also help our cost ratio. We're improving the cost ratio, as you've seen. As we've mentioned already, we start into this crisis, and this is just the beginning, at a solvency level which is well above our target range. And this has been helped by the fact that we have decided not to retain, basically, the dividend for 2019. And as Carine has explained, we've reinforced our balance sheet by very quickly derisking our book and increasing our liquidity.As I mentioned, we're signing agreements with governments where they make sense and where they're available. I think this is still a very fluid situation. There's probably more that will appear over the course of the next quarter or so. I think the whole question here is -- we know where we are. The question is what's going to happen in the future. And I think this will very much be depending on how long these mitigation measures and these lockdown measures will last and also, how are we going to be able to get out of them. And I think, clearly, at this stage, we do not have a vaccine, we do not have drugs that are proven to work. And so there's a lot of adjustments that need to take place. And I think the next months will tell us more about the sanitary crisis, which will drive the economic crisis, which will drive the financial conditions.Another big unknown, I think, is how the government support that's been unprecedented in an unprecedented way marshaled to face this crisis, how is that going to work. And if that's going to be effective, how effective is it going to be in helping companies make it through this crisis? So at this stage, still lots of uncertainty ahead.We do anticipate that our earnings will deteriorate starting next quarter as claims notifications are expected to increase. But again, it is very hard at this stage to have a clear view on how deep and how long this is going to last.So that's what we have today in the deck. And with that, I'm happy to turn it over to questions.

[Operator]

[Operator Instructions] We have a first question from Benoit Petrarque from Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

A couple of questions on my side. So the first one, I was wondering if you could update us on the total risk exposure. I think it was EUR 569 billion at the end of '19. If you could update us and also to show your ability to cut the risk exposure in the first quarter.And also, could you comment on claim notifications in the month of April, what you see? Do you start to see, well, these new claims coming in or it's still too early? So a bit of direction in terms of how those claims could go, that will be very useful.And then another one was on the -- your coverage of government guarantees. Of all the schemes which -- on which you are currently working, how much of your total risk exposure will be covered by those schemes? And I appreciate that there are a different level of schemes. But how much will be actually transferable to the governments? As much -- how much do you expect from that? That will be very useful for us.

[Xavier Pascal Durand, Chief Executive Officer]

Okay. Some pretty meaty questions, I would say. Let me start maybe with the total risk exposure. As I've said, we have been very quick to take stock of what's going on into the market and doubled or tripled the number of actions. I would say net-net, at the end of the first quarter, our risk exposures are down about 3 point -- between 3% and 4%. The -- we've continued to add new clients because we were on a strong momentum. And at the same time, we've obviously looked very hard at some of the most hit and most difficult sectors and most difficult countries or industry groups, if you will. Recognizing that in the face of an event like the one that we are living through, there's just things that are completely impossible to insure. So that's the order of magnitude.In terms of claims, you're right to point out that it takes a while, and I think we've already had this discussion with -- back in 2016 when we were looking at emerging market losses. As you understand, our product is one where payment terms are something like 3 to 9 months, depending on which countries, and clients usually have a few months to submit their claims. Some clients today are also confined, so it makes it harder for them to do this. And we've agreed to extend some claims' times in order to facilitate the work of our clients. So we do expect that the claims will come at a later point during the year. The trend, I would say, is up in terms -- particularly in terms of the severity, but it's too early to really gauge -- give any order of magnitude here. And we're not going to do that today.In terms of coverage of government guarantees, as I explained, there's different types of systems that are being put in place by the governments. The most protective, I would say, for Coface is probably the German government scheme, where -- which has allocated to the industry a significant amount, I think it's about EUR 30 billion in total, to cover losses for deliveries in 2020 of goods where default occurred after March 2020. So basically saying whatever is in the pipe that might go sour because there's this crisis, post end of March, you will be covered, which will protect, if you will, partially but significantly the downside for Coface.On the other hand, you have government programs such as the program that France has come up with, which protects companies, does not impact the risk that we have at any point on our books but does allow for clients to replace existing lines that credit insurers might have had, which they want to reduce or exit, and allow to provide clients with a solution which is insured by the state, obviously, for a certain premium. In that case, I would say the impact on our balance sheet will be very limited. So that's what I can tell you about these schemes. And obviously, we don't know where some other countries might go. These are clearly 2 big ones, but there might be others that follow suit. I hope that helps.

[Benoit Petrarque, Head of Benelux Equity Research]

Do you think the Dutch and Belgium schemes could be comparable to the German? And on the German, I think it's 90% of the claims up to EUR 1 billion which are covered by the state. So your risk is actually on 10% of EUR 1 billion claims, right, in Germany?

[Xavier Pascal Durand, Chief Executive Officer]

Right. I think that's correct. The exchange is 65% of our premiums.

[Carine Pichon, Group Chief Financial & Risk Officer]

You have the detail -- if I may, Benoit, on Page 24, we gave the detailed listing for the German one so that you can try to modelize and the French one, too.

[Xavier Pascal Durand, Chief Executive Officer]

So in terms of other governments, it tends to be linked to culture. I guess probably that the, I would say, Northern Europe countries tend to think in the way the Germans do and probably Southern Europe countries tend to think more of the way the French do. But that's too early to say where these schemes are going because, as you know, they have to be approved by the governments, the parliaments, and then they have to be approved by the European Commission.

[Operator]

Next question is from Thomas Fossard from HSBC.

[Thomas Fossard, Co]

Couple of questions from my side. The first one would be on the -- excuse me, yes. First of all, on the present -- on the prevention actions you've taken during the quarter, I mean, what's -- how is government's scheme preventing you to go as far as you would like to go? Because at the end of the day, if they are putting the scheme in place this is also in order to keep the system fluid. So you can't -- I mean does that prevent you to -- I mean is that reducing somewhat how you're managing your risk exposure? That's the first one.The second question would be on the reinsurance protection. Maybe this is the time now to maybe explain a bit more the different layers of reinsurance protection you have in place and give us a bit of understanding how -- what is the size of your excess of loss, and potentially at a good level, your excess -- your stop-loss program will attach. I think that given we are undertaking the significant part of the crisis, it would be very helpful to understand how this may prevent your balance sheet to be too much impacted.And the third question would be on the financial income. Also, could you provide more information on your bond portfolio? Because you're not splitting really what is sovereign and what is government bonds. I don't think that you've got significant exposure to go to corporate bonds. But if you could split out the exposure, that would be interesting.

[Xavier Pascal Durand, Chief Executive Officer]

Okay. So Carine, if you're okay, I'll answer Thomas' question, the first one, and then I'll let you answer the 2 others on reinsurance and financial income.

[Carine Pichon, Group Chief Financial & Risk Officer]

Okay. No problem.

[Xavier Pascal Durand, Chief Executive Officer]

On the prevention actions, you're right to say that, clearly, the reason governments are putting these systems in place is to try to ensure continuity of protection for corporates because they realize, I think, that the intercompany credit space is absolutely vital for companies. So on one hand, they provide grants and loans and furlough relief for corporates. On the other hand, if large corporations, in particular, stop paying the smaller corporations who themselves stop paying the even smaller corporations, then this could trigger like a domino effect in the economy. So the way the German government, for example, thinks is that by providing cover for credit insurance, they will prevent actions which would be too radical, which would lead to this kind of a domino effect.In effect, what we've agreed to do is to -- barring any, what we would say, exceptional circumstances because, again, there's a lot of uncertainty in this crisis, but we would try to -- wherever possible, stick to the limit-by-limit, client-by-client, sector-by-sector, country-by-country approach that we have implemented so far. And which, if you recall, I committed back in 2016, we would try, wherever possible, to stay with these kinds of methods rather than just using a computer to cut the limits across the board. And that's pretty much the extent of the kind of commitments that we've taken.A similar commitment, I would say, in France, where the state is willing to replace us in certain limits, where we want to disengage ourselves. But again, it's a limit-by-limit exercise. It's not a wholesale approach to it. I hope that answers your question.

[Carine Pichon, Group Chief Financial & Risk Officer]

So for the 2 other questions, Thomas, so bond -- if you come back to Page 18, you see that 64% of the portfolio is bond-related. I will say quite well balanced between sovereign on one side and the credit, including emerging, for -- on the other side. So it's quite balanced between both. What we have done, clearly, at the time is to derisk mainly on the high yield, which is quite obviously the highest risk we have in the portfolio and we'll [indiscernible] on that class of assets.For reinsurance, you're right, we have 3 reinsurance programs. I'll remind, quota share is now 23%. And I think it's very good to have 2 legs of this treaty, one for this year and the other one up to end of 2021. It's useful to have that kind of 2-year contract. One -- on the excess, you're right, it's a [ predictor ]. I think it's not a secret. We used to say that it will represent a maximum of 2% of our shareholders' equity. So if you make the calculation, you -- it's quite public, it's around EUR 50 million. It's not -- it's quite -- I can make the calculation for you.And then we have a stop loss, which is very, very high, which is at a level which is even higher than 2008. So the major excess of stop loss has been touched up to now. So we'll see, but that's how we [ are ] to take it.

[Thomas Fossard, Co]

And for the excess of loss program, I mean, how much do you have available before this excess of loss being exhausted and having to pay...

[Carine Pichon, Group Chief Financial & Risk Officer]

Okay. So to be clear, we have -- and from a risk management policy, we already said that we don't want to have -- I will say, [ used ] exposure above that maximum level. So I will -- it's -- I won't say it's 0 risk, but it is very rare because we kept exposure based on that limit.

[Thomas Fossard, Co]

Okay. And just to come back on the bond exposure, so can we conclude that actually you don't have any high yields anymore?

[Carine Pichon, Group Chief Financial & Risk Officer]

No, we still have -- no, no, we still have. Because we cut by twice, so we are less than 1% now, to make it clear. We still have a very, very small amount as of today. And knowing that in this high yield, you have 2 class of high yield. You have one which is still investment grade, which is most of the portfolio we have. So it's high yield/investment grade.

[Thomas Fossard, Co]

All right. Okay. So on the bond portfolio, basically, you've got 50% sovereign debt and 50%...

[Carine Pichon, Group Chief Financial & Risk Officer]

It's well balanced, let's say, yes. Yes, well balanced.

[Operator]

We don't have any more questions for the moment.[Operator Instructions] We have a new question from Benoit Valleaux from ODDO.

[Benoit Valleaux, Analyst]

Maybe just a question on pricing. You mentioned that you are implementing repricing. So what do you expect in terms of price increase for the months to come? And maybe what has been the share of your business which has been renewed in Q1?And maybe another question regarding factoring. I don't know if you can share with us your view on your factoring business in this environment.

[Xavier Pascal Durand, Chief Executive Officer]

Okay. Well, thanks. So Benoit, on the pricing side, it's not a one size fits all. Clearly, in circumstances like this, we seek to increase our price where possible, but this is very much a, I would say, country-by-country and sector-by-sector approach. For example, we have more arguments in places where the risk is a lot more volatile than in places, for example, like today, where in Germany, you have a government scheme that kind of limits the impact and where the government is actually going to step in.So I think it's hard to answer your question on a wholesale basis. It will be the result of many, many factors. And also, I would say the level of competition between the 3 players and the views that they will take on how long the prices will last, hard to peg a number.Your second question, I'm trying to remember what it was. I wrote first quarter.

[Carine Pichon, Group Chief Financial & Risk Officer]

Factoring. There was a question on factoring.

[Xavier Pascal Durand, Chief Executive Officer]

No. Yes, factoring was number three, but what is the second question?

[Benoit Valleaux, Analyst]

No, no. Just to know what has been the share of business already renewed in Q1.

[Xavier Pascal Durand, Chief Executive Officer]

Yes, yes. So Q1 renewals, typically, end of year is what's coming -- about 50% of our book, something like that.

[Carine Pichon, Group Chief Financial & Risk Officer]

That is -- yes. At the end of Q1, it's a little less than 50%. It's quite more in Europe because contracts are readied at the start of the year, less in emerging. So a little less than 50% has been renewed.

[Xavier Pascal Durand, Chief Executive Officer]

So a little less than 50%. So I used to comment -- I think I made this comment many times already. The credit insurance cycle is a 2-year cycle because you see the losses and then you're -- really, the bulk of the repricing takes place after the losses have appeared and a year later, right? So in terms of timing, it will take some time.In terms of the factoring business, as you know, we have been revamping our book, and we spent a lot of time over the course of the last couple of years, I would say, getting the risk right on or adjusting our risk appetite on the factoring business, working on the pricing and hired a new team to lead the business. It was part of -- it is part of our Build to Lead plan to improve this business. So I think the plan continues. I mean given the circumstances, they're a little different.There's 2 things that we're doing. One is controlling the risk and reviewing the entire book, working pretty much like we do with credit insurance. And by the way, as you know, our factoring business is also credit insured, either by ourselves or by policies with our competitors. And so pretty much the same thing that's happening in the factoring -- in the credit insurance space is happening in the factoring book.The other consideration, that has to do with liquidity. And we're -- as you know, we have multiple structure around liquidity for our factoring business. Funding is done through a securitization vehicle, through the commercial paper market, through bilateral credit lines with banks and through backup credit lines for the commercial paper business. So we are -- the commercial paper market today is, I would say, on and off, has ons and offs. It's pretty much kind of closed, but sometimes there's opening. So we're grabbing these when we can, and then we have the backup lines to go to in case that's not available. I hope that answers the question.

[Operator]

We have a new question from Thomas Fossard from HSBC.

[Thomas Fossard, Co]

The first one would be back to the government schemes. Can you remind us if the U.K., back in '08/'09, put a scheme in place and how this was comparable to maybe French and German? Because, I mean, this is where you're expecting probably one of the highest increase in bankruptcy in 2020, so I was wondering if you were expecting some form of guarantees as well.And maybe as well for the U.S. because, in the U.S., you are expecting plus 39% bankruptcy rate increase. But I mean given the fact that credit insurance in the U.S. is not very well known, I'm really wondering if the -- I don't see the U.S. government putting anything in place. So would you be completely naked in the U.S. versus something which could be pretty significant as well for the U.S. market or it's not your biggest exposure?The second question would be regarding the timing of the claims. So what you're saying is that you are relatively in that cycle. So could you be a bit more precise if you're expecting the claims coming to your books in Q2? Or are you expecting the claims hitting your book from Q3 onwards? And the last question would be could you remind us what was the average recovery rate you experienced during the previous financial crisis?

[Xavier Pascal Durand, Chief Executive Officer]

Okay. So Thomas, I was not here in '08/'09, and I don't know what the U.K. put in place at the time. So I don't know, Carine, if you have the answer to this one.

[Carine Pichon, Group Chief Financial & Risk Officer]

No. For '08, no. I know what's ongoing, but not '08, no.

[Xavier Pascal Durand, Chief Executive Officer]

Okay. So I can't help with this one. I mean I do share your view that in the U.S., credit insurance is a marginal product. It's much more utilized and its penetration is much higher in Western Europe. So we do get the government's attention in Western Europe. I doubt that in the U.S., we would get a lot of traction. So I kind of share your view on the fact that there's going to be much less protection in that part of the world.In terms of the timing of claims, it varies by region. If you recall the discussions back in 2016, we saw that, in Asia, they tend to be later. In Europe, they tend to come a bit sooner. So I do expect claims to start rising in Q2. How long this lasts, I mean, impossible to forecast at this stage, but it will be probably different by region.And then in terms of the recovery rates, Carine, can you answer this one?

[Carine Pichon, Group Chief Financial & Risk Officer]

What I can tell you in a way to answer you, Thomas, is that recovery rate decrease when you have insolvencies because when you are going to bankruptcy, you have few chance to recover, which is not the case where it's more delay of payments. What I can remind is that, in '08, the share of insolvencies in claims has tripled. So it means that we have had a significant share of claims which was bankruptcy with no recovery rates. So we may anticipate, and that's what we start to anticipate, lower recovery rates during that period of the cycle.

[Thomas Fossard, Co]

But that was lower than -- I mean, I guess that in '08/'09, that was lower already than the -- maybe the 20% number -- 20%, 25% normalized recovery rates you're usually getting, I guess?

[Carine Pichon, Group Chief Financial & Risk Officer]

25%? No, no, we have higher recovery rates.

[Thomas Fossard, Co]

You've got -- so what's the...

[Xavier Pascal Durand, Chief Executive Officer]

On average to the cycle, no?

[Carine Pichon, Group Chief Financial & Risk Officer]

No, on average -- I can't answer on -- I think it can even -- if I remind, it can be divided by 2, the recovery rate.

[Xavier Pascal Durand, Chief Executive Officer]

Yes. I think -- I remember, in '16, Carine, we had double-digit recoveries, but they were low double digits, right, it looked like.

[Carine Pichon, Group Chief Financial & Risk Officer]

Yes, yes.

[Xavier Pascal Durand, Chief Executive Officer]

In the teens or something like this.

[Operator]

[Operator Instructions]

[Xavier Pascal Durand, Chief Executive Officer]

Okay. I don't think we need to torture people any more. I mean, I just want to thank all of you for logging in. Very peculiar times we're going through. I think this is the most surprising and unknown crisis we've had for a long time. So the business is up and running and alert and doing everything it can. But clearly, there's a lot of unknowns. So I think we will know more as the quarters come.Our next call is going to be in July, and that's for the second quarter results. Thank you.

[Carine Pichon, Group Chief Financial & Risk Officer]

Goodbye.

[Operator]

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for connecting. You may now disconnect.