Insurers Zurich and Allianz have exposure linked to Radiant World
Iron ore trader battling court claims from creditors around allegedly fraudulent documentation
Zurich and Allianz wrote policies covering losses on transactions linked to embattled iron ore trader Radiant World, potentially exposing trade credit insurers to yet another alleged fraud in the booming market for protection.
The unravelling of Radiant, which is battling court claims from creditors in the UK and Singapore around allegedly fraudulent documentation underpinning its trading, has left commodity traders and financial institutions rushing to manage their exposure. Radiant and its founder, Pinkesh Nahar, have denied wrongdoing.
The debacle also threatens to spill over into the insurance market, where firms that specialise in writing policies covering the risk that trading counterparties do not settle their bills have potential exposure.
Zurich had insured Radiant against non-payment from multiple counterparties, one of which was the commodity trading giant Glencore, according to people familiar with the agreements, with a policy providing cover in the double-digit millions of dollars.
Glencore was one of Radiant’s biggest trading counterparties and has faced a lawsuit threat from the Singapore-based iron ore trader, which has alleged their relationship went beyond that of a counterparty and described the Anglo-Swiss commodities group as “a senior partner in the relationship”. Glencore has called these claims “meritless”.
Allianz Trade, a subsidiary of the large German insurer that specialises in trade credit insurance, had also insured Radiant against non-payment, though its total exposure is smaller than that of Zurich, according to people familiar with that policy.
Insuring invoices underpinning global trade has become one of the most lucrative niches in the insurance market. Commodity traders and suppliers have long used insurance to shield themselves from the risk that counterparties default or pay late, but the product has grown in use as a hedging tool for financial institutions that lend against outstanding bills.
The trade credit insurance market has dealt with the fallout of several high-profile collapses amid fraud allegations in recent years, leading to messy contract disputes.
Trade credit insurance policies typically cover businesses against the risk that a customer does not pay, due to risks such as a customer’s insolvency or default, while excluding losses due to some forms of fraud. But these provisions are often litigated and courts have found that under certain policies insurance carriers must pay out even in cases involving fraud.
The collapse of invoice finance firm Greensill Capital in 2021 has resulted in years-long litigation, in which global insurers have alleged that billions of dollars’ worth of policies have been voided due to fraud.
Zurich is defending itself against a $400mn claim in London’s High Court from the administrator of Greensill’s banking arm over insurance policies linked to the commodity trading arm of controversial metals magnate Sanjeev Gupta.
Zurich has refused to pay out on the insurance, contending that it is void because a key lending programme provided by Greensill to Gupta’s companies was a “sham” and relevant information provided to it was false.
Allianz Trade was also among the groups exposed to potential claims stemming from the bankruptcy of US auto parts maker First Brands Group, which relied heavily on invoice financing and faced allegations of fraud after its collapse.
Zurich said in a statement that it “does not have any material exposure to Radiant World”. Allianz Trade and Radiant declined to comment.