The Insurers Always Know First: What First Brands’ Downfall Means for Canada’s Trade-Credit Market

Trade-credit insurance, once seen as a niche but stable corner of the financial world, is now facing one of its most serious challenges in years. The recent collapse of First Brands Group, a major U.S. auto-parts supplier, has shaken confidence in how global supply chains, trade-credit insurers, and receivables-finance markets operate. What began as a corporate insolvency has evolved into a full-scale stress test for insurers, brokers, and lenders across North America — with significant implications for Canada’s trade-credit market.

As Canada’s economy remains closely linked with that of the United States, the unfolding situation offers a revealing look into how cross-border credit insurance might hold up when a major player fails. Behind the headlines lies a complex story of financing structures, policy wording, and risk management — one that may influence the future of trade-credit insurance for years to come.

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The Fall of First Brands: A Signal of Deeper Trouble

The troubles at First Brands Group stemmed from its heavy reliance on invoice financing — the practice of selling customer receivables to third-party investors in exchange for immediate cash. While this model can improve liquidity and strengthen balance sheets, it also introduces hidden risks. As interest rates rose sharply over the past two years and global supply chains tightened, the company’s cash flow weakened. What followed was a cascading series of defaults that exposed vulnerabilities across its financing network.

According to Financial Times reporting, Allianz, Coface, and AIG were among the insurers providing coverage to investors and trading partners exposed to First Brands’ receivable programs. Some insurers, noticing early signs of distress — such as payment delays and accounting irregularities — began reducing their coverage months before the bankruptcy filing. One trade-finance executive summed it up: “The insurers always know first.”

The scale of exposure is still being assessed. Early estimates suggest hundreds of millions of dollars’ worth of insured receivables could be affected. While insurers claim their direct exposure is not “material,” industry observers warn that history shows such statements can quickly change once claims start to be filed and litigated.

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The Canadian Context: A Temporary Buffer in a Shifting Landscape

Although First Brands’ collapse originated in the United States, Canadian exporters and insurers are keeping a close eye on the situation. Canada’s trade-credit market is deeply intertwined with the U.S., both through direct exports and shared banking and insurance relationships.

John Middleton, Vice-President of Complex Risk and Trade Credit at HUB International, noted that Canada currently benefits from the Canada–U.S.–Mexico Agreement (CUSMA), which provides a limited shield against certain market shocks. He explained that the agreement has, so far, helped Canadian exporters maintain confidence despite volatility in U.S. trade and tariff policy. However, this protection is not guaranteed to last; CUSMA is due for review in 2026, and any changes could reshape the risk environment for exporters.

Canadian businesses are using this window of relative stability to strengthen their credit-risk management and reassess insurance coverage limits. Demand for trade-credit insurance in Canada has grown significantly in 2024 and 2025, as firms seek to protect themselves from potential buyer defaults amid global uncertainty.

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How Trade-Credit Insurance Works — and Why It Matters Now

Trade-credit insurance is designed to protect businesses when customers fail to pay for goods or services. This coverage ensures that exporters, manufacturers, and suppliers can maintain stable cash flow even when faced with buyer insolvency or political risk.

In normal conditions, these policies operate smoothly, but when companies begin relying heavily on receivables-backed financing, things get complicated. Policies must clearly define what constitutes “default,” “fraud,” and “misrepresentation.” When multiple lenders, insurers, and investors are involved, the risk of overlapping claims — or disputes over disclosure obligations — increases dramatically.

The First Brands crisis has reignited discussions about how transparent trade-finance structures truly are. Regulators are now looking closely at how credit insurance is being used to “wrap” or enhance the credit quality of assets sold to investors — a model similar to what fueled the subprime mortgage crisis in 2008.

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Legal and Regulatory Fallout: The Fine Print Will Decide Everything

The question now dominating the insurance and finance sectors is not just “how much exposure exists,” but who will ultimately pay.

Most trade-credit insurance policies include strict provisions about what must be disclosed and by whom. Insurers can deny claims if they prove that policyholders knowingly withheld information about financial distress or fraud. But proving such knowledge is often difficult. Some policies even specify which company executives must have been aware of the problem for coverage to be invalidated.

The U.S. Department of Justice has already opened a fact-finding inquiry into First Brands’ downfall. Investigators are reportedly examining whether misrepresentations were made to investors or insurers about the true nature of the receivables being financed. The outcome of this investigation could set new precedents for how future trade-credit policies are structured and interpreted.

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Lessons from Greensill and Parmalat: History Repeats

This is not the first time the global credit insurance industry has faced such turbulence. In 2021, the collapse of Greensill Capital revealed how opaque and layered receivables-financing structures could hide massive risk exposure. Years earlier, the Parmalat fraud in 2003 showed that insurers could be forced to pay large claims even when fraud was involved, provided the insured parties themselves were not complicit.

These cases underscore a crucial point: wording and precedent matter. The exact phrasing of a trade-credit policy — and the legal interpretation of terms like “knowledge,” “fraud,” or “misstatement” — can determine whether insurers must pay or can deny a claim. For First Brands, that battle is only beginning.

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The Challenge Ahead for Brokers and Carriers

For brokers, carriers, and lenders, the immediate challenge is deeply forensic. They must trace the path of every receivable, verify whether any invoices were traded more than once, and confirm whether each insurance endorsement aligns with notice and claims-control clauses.

Even if overall losses remain manageable, the administrative and legal workload will be immense. Every mismatch in documentation or delay in notification could trigger disputes that last for years.

Fortunately, most trade-credit insurers are entering this period from a position of relative financial strength. Companies such as Coface, Atradius, and Euler Hermes have maintained low loss ratios — paying out only around 40 cents in claims for every dollar in premiums collected. This cushion will help them absorb potential shocks, but the reputational and regulatory consequences could still be significant if coverage disputes turn contentious.

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The Broader Implications for the Global Credit Market

The implications of First Brands’ downfall reach far beyond the auto-parts sector. The crisis is already prompting lenders and insurers to re-evaluate how they assess short-term corporate credit risk. Regulators in both the U.S. and Canada are expected to push for greater transparency in receivables-finance markets, potentially introducing new disclosure requirements or risk-weighting rules for banks and funds that rely heavily on credit insurance.

Market analysts also predict a tightening of underwriting standards. Insurers will likely become more cautious about providing coverage for invoice-backed assets, demanding more detailed due diligence and clearer audit trails. This could raise costs for borrowers but may ultimately strengthen the market’s long-term resilience.

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Conclusion: Confidence or Crisis?

The collapse of First Brands is more than a single company’s failure — it’s a warning signal for the entire trade-credit ecosystem. For Canada, the next year will be crucial. The stability provided by CUSMA, strong domestic banking systems, and conservative underwriting has so far protected Canadian exporters from major shocks. But as trade policies, interest rates, and supply-chain pressures evolve, those protections may be tested.

Whether insurers like Allianz, Coface, and AIG can handle this crisis smoothly will shape the future of confidence in trade-credit insurance. As Bos Smith of BroadRiver Asset Management noted, “If claims are paid fairly and transparently, the market will emerge stronger. If not, it could undermine trust in one of the most essential tools supporting global trade.”

In an era where every invoice, shipment, and payment can be financed, insured, and resold — the fine print has never mattered more.