Insurers Brace for Massive Losses as First Brands Bankruptcy Exposes Hidden Web of Receivables

A Financial Shockwave Hits the Trade-Credit Insurance Market

The collapse of First Brands Group, a major U.S. auto parts manufacturer, has sent ripples through the global insurance and trade-finance markets. For years, trade-credit insurance was considered a steady and profitable business for global insurers like Allianz, Coface, and AIG. These companies provided protection to businesses and investors involved in receivables financing—a form of short-term lending that relies on invoices as collateral.

Now, with First Brands declaring bankruptcy, insurers are staring down a tangle of complex claims and legal uncertainties. The situation has been described by some analysts as potentially the “next subprime crisis”, given the scale of interconnected debt and insurance exposure hidden within layers of off-balance-sheet finance.

Inside the First Brands Collapse

First Brands built its financial engine around invoice financing—a strategy that involves selling receivables (money owed by customers) to obtain quick cash. Investors and funds would then finance these transactions, often with insurance backing their exposure. This setup was attractive because it allowed First Brands to maintain liquidity while investors gained access to low-risk, short-term assets backed by insured invoices.

However, the system began to unravel when payment frictions appeared across subsidiaries. Insurers reportedly started scaling back their coverage as early as 2024, anticipating trouble. According to The Financial Times, Point Bonita Capital, a Jefferies-managed fund, held roughly $715 million in receivables tied to First Brands, and about 20% of its $3 billion portfolio was “hedged” through credit insurance. Another firm, Evolution Credit Partners, also heavily utilized such insurance mechanisms to safeguard investments.

As liquidity pressures mounted, the structure collapsed—leaving a trail of uncertain liabilities, disputed coverage terms, and nervous insurers trying to gauge the real scale of exposure.

Why the Case Matters for Global Insurers

The bankruptcy of First Brands is not just another corporate failure—it’s a test of how resilient the trade-credit insurance sector truly is. Insurers have downplayed their exposure, claiming that losses tied to First Brands are “not material.” Yet experts warn that such assurances often precede drawn-out legal conflicts, especially in cases involving complex receivables financing chains and ambiguous policy wording.

The collapse has also revived memories of the Greensill Capital crisis in 2021, which triggered years of litigation over whether insurance policies covered debts linked to supply-chain finance programs. Many insurers, brokers, and investors spent years in court debating policy definitions, fraud clauses, and disclosure obligations. The First Brands situation could reignite those same arguments—testing whether insurers have truly learned from past mistakes.

Legal Battles Ahead: The Power of Policy Wording

In trade-credit insurance, everything comes down to the exact language of the policy. Most contracts state that an insurer can void coverage for fraud only if it can prove the policyholder was aware of the misconduct and failed to disclose it. This means that unless insurers can show that the insured parties knew about deceptive practices, they may be forced to pay.

Complicating matters further, some policies limit which company executives’ knowledge counts in determining misrepresentation, while others still pay even if a “rogue employee” was involved. These nuances can decide whether claims worth hundreds of millions are paid or denied.

Historical precedent also matters. After the Parmalat collapse in 2003, insurers were compelled to pay significant sums when they couldn’t prove that banks were aware of fraudulent activities. If similar arguments hold in the First Brands case, insurers could face a substantial financial burden.

Government Oversight and Market Implications

The U.S. Department of Justice has reportedly begun investigating First Brands’ financial operations. While still in its early stages, this probe could have wide-reaching implications. Regulators are likely to scrutinize how invoice financing programs are structured, how insurers price and underwrite such risks, and whether disclosure practices are sufficient to prevent systemic failures.

This heightened regulatory attention could reshape the entire trade-credit insurance landscape, forcing companies to adopt stricter due diligence and more transparent policy frameworks. It may also pressure insurers to reconsider how much exposure they take on in receivables-backed finance.

Operational Fallout: Insurers in Forensic Mode

Behind the scenes, insurers are now engaged in a painstaking forensic process. Teams are tracing the chain of receivables to determine which invoices were sold, how many times they changed hands, and whether any were duplicated across different financing programs. They’re also reviewing policy cancellation rights, notification provisions, and lender endorsements, all of which influence how quickly and fully claims can be paid.

Even if total losses prove manageable, the administrative strain will be significant. Mismatches in policy wording across different insurance layers could delay settlements and spark disputes between carriers, reinsurers, and insured parties.

Trade-Credit Insurance: Profitable, but the Cushion Is Thinning

For the past several years, trade-credit insurance has delivered enviable profitability. Insurers like Coface, Atradius, and Allianz Trade (formerly Euler Hermes) have all reported loss ratios below 40%, compared with much higher levels across traditional property and casualty lines.

Atradius’s 2023 gross claims ratio stood at 39.4%, with a combined ratio of 75.2%.
Allianz Trade posted a 78.7% combined ratio in mid-2023.
Coface, reporting under IFRS 17, achieved a net combined ratio of 64.3%.

However, that cushion is now under pressure. Insurers’ economic outlooks predict a 10% increase in global corporate insolvencies in 2024 and another 6% in 2025—conditions that inevitably lead to more frequent and larger claims. Compounding this, average policy pricing hasn’t risen fast enough to offset these risks.

Furthermore, reinsurance costs and new accounting standards under IFRS 17 are squeezing margins. While IFRS 17 doesn’t change profitability directly, it alters how results are reported, making year-over-year comparisons tricky just as the industry enters a more volatile period.

The Litigation Shadow: Lessons from Greensill and Beyond

The Greensill Capital collapse taught insurers that litigation can quietly erode profitability for years. Complex legal battles over policy interpretation, disclosure obligations, and fraudulent intent can drag on long after headline claims are filed. Even if reported loss ratios appear stable, underlying disputes can drain resources and capital reserves.

First Brands’ bankruptcy could become the next such stress test—especially if conflicting contract language or incomplete documentation surfaces. Insurers will need to prepare for multi-year claim reviews, court cases, and arbitration that test not just their balance sheets but their credibility as reliable backstops for trade finance.

Market Confidence Hangs in the Balance

Market sentiment could swing sharply depending on how insurers handle claims. Bos Smith, a portfolio manager at BroadRiver Asset Management, described the case as “an important case study.” He explained, “If insurers pay claims smoothly, it will reinforce trust in the product. But if they delay or deny payments, it could trigger a serious confidence issue.”

In short, the outcome of the First Brands case will not only determine financial losses—it will also define how investors and corporates view trade-credit insurance as a cornerstone of modern finance.

Conclusion: A Turning Point for Trade-Credit Insurance

The collapse of First Brands Group represents a watershed moment for the credit insurance industry. It exposes the vulnerabilities of receivables-backed lending and underscores how intricate and fragile these financial webs can be.

While insurers currently enjoy solid underwriting performance, the combination of rising insolvencies, tightening margins, and growing regulatory scrutiny may erode that stability. The true test will come when insurers must honor—or contest—claims worth hundreds of millions, in a marketplace watching every move.

If handled transparently and fairly, this crisis could strengthen the industry’s foundation. But if insurers stumble or deny legitimate claims, it may mark the beginning of a new era of distrust in credit insurance—an outcome with echoes of the subprime mortgage meltdown that shook global finance nearly two decades ago.

Insurers Brace for Massive Losses as First Brands Bankruptcy Exposes Hidden Web of Receivables