The energy sector has always operated in a high-stakes environment. From fluctuating commodity prices to extreme weather events, companies face a wide range of unpredictable risks. While the financial health of many energy firms appears solid—particularly in North America—disruptions highlight the critical importance of proactive risk management. The TradeSecurely podcast looked at how trade credit insurance can be used as a safeguard but also as a strategic growth enabler to help companies navigate risk and opportunity.
Extreme weather events have proved that energy companies are not immune to sudden severe disruptions. Just remember the sudden impact of Winter Storm Uri in February 2021, and the wildfires in California and Maui, which led to insolvencies even among companies with robust balance sheets, as Josh Steele, Head of Underwriting for Energy at Allianz pointed out.
Many companies use trade credit insurance for protection, but it is also for enabling growth. Whether a company is upstream, midstream, or downstream in the supply chain, the product provides liquidity support, boosts risk appetite, and allows companies to trade at higher volumes with less financial friction, according to Ryan Wimberley, SVP and Regional Head of Direct Sales for Bank and Energy at Allianz.
A key misconception is that receivables insurance is a reactive tool. In reality says Wimberley, “It’s not about the insurance. It’s about clearing credit and creating capacity. That’s the value.”
This sentiment is echoed by Kevin Sullivan, VP of Energy Specialty at OneSource who notes that even companies with minimal historical defaults can benefit. The ability to sell to non-investment-grade buyers—safely wrapped by an insurer’s AAA-rated backing—opens the door to higher-margin opportunities that credit departments might otherwise reject.
Sullivan also adds that companies with fixed-price contracts are particularly good candidates for trade credit insurance. “We’re seeing companies lock into long-term power purchase agreements or supply contracts. If their buyer defaults, they could be left with a loss if market prices have changed. Our policies cover that spread risk,” said Sullivan.
Alternatives and Enhancements
While letters of credit (LCs) have traditionally dominated the trade finance landscape, they tie up working capital and are costly—especially in rising interest rate environments. Demand payment bonds, or on-demand bonds, are emerging as more flexible, cost-effective alternatives that free up liquidity without being tied to rates.
“These tools allow companies to offer better terms to customers or reduce collateral postings with ISOs and pipeline operators,” explains Sullivan. “It’s a win-win that enhances operations on both the buy and sell sides.”
Real-World Application
In one case, Allianz and OneSource helped a power sector client insure its nine largest receivables. The company posted demand bonds in place of traditional collateral. The result for this client? Freed-up working capital approaching nine figures, enabling the company to invest further into its operations while mitigating financial risk.
Conclusion
Trade credit insurance in the energy sector is no longer just about mitigating loss. It’s a forward-looking financial tool that enables companies to trade more aggressively, manage liquidity more efficiently, and navigate an increasingly complex risk landscape.
As Wimberley concludes, “If your company is moving a molecule or an electron, we should be having a conversation.”
Learn More
Listen to Episode #35 TradeSecurely podcast for more information on how Trade Credit Insurance helps energy companies navigate risk and opportunity.
