Coface’s Mixed Start to 2025: Growth in Services Masks Profitability Pressures

Coface, the French trade credit insurer and provider of risk management solutions, kicked off 2025 with net income of €62.1 million—a 9.2% decline from the same period last year—while its Return on Average Tangible Equity (RoATE) dipped to 12.7%, down from 13.9% in 2024 and 14.8% in 2023. The results underscore a company navigating a precarious balance: expanding high-margin non-insurance businesses while grappling with rising costs and macroeconomic headwinds.

The Numbers: A Decelerating Profit Machine

Coface’s RoATE has trended downward since hitting a five-year high of 16.4% in 2022 (annualized through Q3), reflecting persistent cost pressures and weaker underwriting performance. While net income grew steadily from €82.9 million in 2020 to record highs of €283.1 million in both 2022 and 2023, the Q1-2025 drop to €62.1 million signals potential stagnation. The RoATE decline to 12.7%—its lowest since at least 2020—hints at margin compression, driven by:

1. Cost Inflation: Operational costs rose 5.7% year-on-year at constant exchange rates in Q1-2025, reflecting investments in risk analytics and staffing for its Business Information division.
2. Underwriting Struggles: Underwriting income fell 15.4% year-on-year, as Coface’s conservative stance toward credit risk—driven by U.S. trade policy uncertainties and global inflation—limited premium growth in core insurance segments.
3. Investment Volatility: Investment returns plunged 44.2% year-on-year, hit by market turbulence and reduced yields.

The Silver Lining: Strategic Shifts Pay Off (Sort Of)

Despite the profitability pressures, Coface’s pivot to high-margin non-insurance services—Business Information and Debt Collection—continues to deliver. These segments grew 16.3% and 19.6% in 2024, respectively, and contributed nearly 700 dedicated staff to the business. In Q1-2025, Business Information revenue rose 18.4%, while Debt Collection commissions jumped 14.7%, illustrating the strategic focus on diversification.

This shift has insulated Coface from declines in its core trade credit insurance business, which fell 2.2% in 2024. However, the tradeoff is clear: while non-insurance segments are profitable, they can’t fully offset the margin drag from underwriting and rising costs.

Geographic Winners and Losers

Regional performance highlights both opportunities and vulnerabilities. Coface’s Mediterranean/Africa and Latin American divisions grew 5.6% and 16.0% in Q1-2025, respectively, benefiting from expanding trade corridors and demand for risk mitigation tools. However, Northern Europe and Central/Eastern Europe lagged, with declines of 4.6% and 3.2%, reflecting local economic slowdowns.

The Elephant in the Room: U.S. Trade Policy Uncertainty

Coface’s CEO has repeatedly cited U.S. trade policy as a key risk, particularly around tariffs and supply chain disruptions. The company’s Q1 results noted “heightened trade policy uncertainty,” which could suppress global trade volumes and increase business failure rates—a double-edged sword. While higher claim frequency could pressure loss ratios, it also underscores the necessity of Coface’s services in an uncertain environment.

The Bottom Line: Cautious Optimism, But Cost Discipline Is Key

Coface’s Q1 results are a mixed bag. On one hand, its non-insurance growth and strong client retention (95% in Q1) suggest resilience. On the other, the RoATE decline and cost inflation raise red flags about long-term profitability.

Investors should watch two critical factors:
1. Cost Control: Can Coface rein in operational expenses while maintaining investments in high-margin services?
2. Macroeconomic Stability: Will U.S. trade policies stabilize, or will they continue to disrupt global trade patterns and drag on underwriting growth?

Historically, Coface’s RoATE has been a barometer of its success in balancing growth and risk. At 12.7%, it’s now below its five-year average of ~15%, but not yet alarming. If the company can stabilize costs and leverage its data-driven advantages in Business Information, it could rebound.

Conclusion: Hold for Now, but Monitor Costs

Coface’s Q1 results are a reminder that trade credit insurers are cyclical businesses, tied to macroeconomic conditions. While its strategic shift to high-margin services is paying dividends, the RoATE decline suggests that the current environment is testing its cost discipline.

Investors should take a cautious stance, holding the stock while waiting for clearer signs of stabilization. If Coface can demonstrate margin resilience or a turnaround in underwriting income—perhaps through premium hikes or a pickup in trade volumes—its shares could rebound. Until then, the 12.7% RoATE serves as a yellow flag, not a red one.

Final Note: Coface’s ability to navigate this crossroads will determine whether it becomes a value play or a cautionary tale in an uncertain global economy.