Insolvency Risk in Credit Insurance: Evaluating Insurer Resilience Post-First Brands Bankruptcy

The recent collapse of First Brands Group-a major player in the automotive parts sector-has exposed systemic vulnerabilities in credit insurance markets, testing the resilience of global insurers such as American International Group (AIG), Allianz, and Coface. The bankruptcy, triggered by opaque off-balance-sheet liabilities and a debt-to-EBITDA ratio exceeding 10x, according to a Capital Market Journal analysis, has led to estimated losses of 75–100% for insurers and institutional investors, per BDC Reporter. This analysis evaluates the capital adequacy and risk management frameworks of these insurers to assess their ability to withstand such shocks and provides strategic insights for investors navigating this volatile landscape.

The First Brands Crisis: A Case Study in Insolvency Risk

First Brands' Chapter 11 filing in late September 2025 revealed liabilities of up to $50 billion against assets of $1–10 billion, a stark imbalance exacerbated by $2 billion in factoring arrangements and $4 billion in off-balance-sheet obligations, according to a Cobalt Intelligence note. The company's reliance on reverse factoring and invoice financing obscured its true leverage, leading to a rapid erosion of investor confidence. By the time the bankruptcy was filed, senior debt had traded as low as 33 cents on the dollar, based on a Morningstar analysis. For credit insurers, this collapse has triggered a wave of claims, with AIG, Allianz, and Coface facing significant exposure to defaulted policies, as reported in a Financial Times report.

Insurer Resilience: Capital Adequacy and Risk Management

Allianz has demonstrated robust capital strength, maintaining a Solvency II capitalization ratio of 209% as of Q2 2025, stated in an Allianz press release. This metric, which measures the insurer's capital relative to its risk-based solvency requirements, exceeds the EU regulatory minimum of 100% and provides a buffer against large-scale losses. Allianz's Solvency and Financial Condition Reports, accessible in its Allianz SFCR, highlight its disciplined approach to operational risk management and climate scenario analysis, aligning with revised Solvency II requirements.

Coface, a European credit insurer, reported a solvency ratio of 195% in H1 2025 in its Coface H1 2025 results, slightly above its target range of 155–175%. Despite a 12.7% decline in net income year-over-year, the company has maintained strategic investments in credit insurance and leveraged acquisitions to diversify its risk profile (see Coface's regulated information). Coface's CEO emphasized its ability to control loss experience amid rising global bankruptcies, though U.S. tariff uncertainties remain a concern (see Coface's regulated information).

AIG, however, presents a more nuanced picture. While its Q2 2025 results showed a debt-to-capital ratio of 17.9% and parent liquidity of $4.8 billion, as outlined in an AIG press release, the firm has not disclosed its Solvency II capital adequacy ratio explicitly. AIG's risk management disclosures emphasize underwriting discipline, with a General Insurance combined ratio of 89.3% and catastrophe losses reduced to $170 million from $325 million in Q2 2024, according to Investing.com slides. However, the firm's exposure to First Brands and its reliance on U.S. regulatory frameworks (rather than Solvency II) may limit transparency for international investors; see AIG's SEC filings for further detail AIG SEC filings.

Investment Implications and Strategic Positioning

The First Brands crisis underscores the importance of capital adequacy in credit insurance. Insurers with Solvency II ratios above 200%, like Allianz, are better positioned to absorb large losses without breaching regulatory thresholds. Conversely, firms with lower ratios, such as Coface, may face pressure to raise capital or reduce risk exposure. For AIG, the absence of a clear Solvency II metric introduces uncertainty, though its strong liquidity and debt management practices suggest resilience.

Investors should prioritize insurers with transparent risk management frameworks and diversified credit portfolios. Allianz's adherence to revised Solvency II requirements and Coface's strategic acquisitions offer defensive qualities in a high-volatility environment. AIG, while financially sound, requires closer scrutiny of its U.S.-centric disclosures and exposure to opaque financing structures.

For downside protection, consider hedging positions in insurers with concentrated credit insurance portfolios or those operating in markets with weak regulatory oversight. Conversely, overweight allocations to firms with robust capital buffers and proactive risk mitigation strategies, such as Allianz.

Conclusion

The First Brands bankruptcy serves as a cautionary tale for credit insurers and investors alike. While Allianz and Coface demonstrate resilience through strong capital ratios and adaptive risk management, AIG's opacity in Solvency II metrics warrants caution. As the industry grapples with systemic risks from opaque financing and high leverage, strategic positioning in well-capitalized insurers will be critical for capital preservation.