Insurers brace for potential claims linked to First Brands bankruptcy - report

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Insurers that have written policies protecting First Brands' trading partners or investors from losses through trade credit include Allianz (OTCPK:ALIZF [https://seekingalpha.com/symbol/ALIZF]) (OTCPK:ALIZY [https://seekingalpha.com/symbol/ALIZY]) (NEOE:ALZ:CA [https://seekingalpha.com/symbol/ALZ:CA]), American International Group (NYSE:AIG [https://seekingalpha.com/symbol/AIG]), and Coface (OTCPK:CFACY [https://seekingalpha.com/symbol/CFACY]) (OTCPK:COFAF [https://seekingalpha.com/symbol/COFAF]), according to a media report.

Senior executives at some large credit insurers said they have pulled back on coverage associated with First Brands before the Chapter 11 bankruptcy on Sept. 25, 2025, the_ Financial Times _reported. One trade credit finance fund manager said his insurer started reducing its cover almost a year ahead of First Brands' bankruptcy filing, once it detected payment problems at one of the company's subsidiaries, the newspaper said.

Suppliers of raw materials or products have long used insurance to protect from the risk of non-payment. Credit insurance, meanwhile, has evolved into a hedge for financial institutions that lend against invoices, the_ FT _said [https://www.ft.com/content/de377455-3b5e-4da4-ba3a-ac8b03dcde09].

"In practical terms, TCI (trade credit insurance) stabilizes corporate cash flows and facilitates bank financing of receivables by serving as a form of credit enhancement," said Morningstar|DBRS in a note. "From a macroeconomic perspective, TCI underpins an estimated $3-4 trillion of annual global trade flows and helps sustain working capital liquidity across supply chains."

In such policies, the wording can vary and, in some cases, there's a high threshold for avoiding payouts. When fraud is involved — and First Brands hasn't been accused of fraud at this point — many policies can be deemed invalid only if the insurer can prove the policyholder was aware of the fraudulent activity and either didn't disclose it or misrepresented It.

Last week, the U.S. Department of Justice opened an inquiry [https://seekingalpha.com/news/4503116-justice-department-launches-inquiry-into-first-brands-bankruptcy]into First Brands' $12B collapse. That investigation is in early stages and doesn't mean that any wrongdoing occurred.

Morningstar|DBRS's base case estimates that valid claims of total insured losses range from $300M to $600M. But in its adverse case, claims recognition, reserve strengthening, and total losses could exceed $1B across trade credit insurers and reinsurers, the company said.

The note pointed to a number of potential repercussions from the First Brands case, encompassing direct claims exposure, inflated loss adjustment expenses and reserve creep stemming from the dispute process, claims that reinsurers are responsible for, and rate hardening, tighter underwriting controls, and a reduction in limits.

Last week, several financial institutions disclosed their exposures to First Brands, including Jefferies Financial Group [https://seekingalpha.com/news/4502610-jefferies-tallies-161m-of-exposure-to-bankrupt-auto-parts-maker-first-brands] (JEF [https://seekingalpha.com/symbol/JEF]), UBS (UBS [https://seekingalpha.com/symbol/UBS]), and Western Alliance Bancorporation [https://seekingalpha.com/news/4502721-western-alliance-stock-slides-after-report-on-risks-from-first-brands] (WAL [https://seekingalpha.com/symbol/WAL]).

On Monday, Patrick James, First Brands' elusive CEO, resigned from the company, [https://seekingalpha.com/news/4503585-first-brands-ceo-patrick-james-resigns-from-collapsed-auto-parts-giant]Bloomberg News reported.

MORE ON FIRST BRANDS

* First Brands Bankruptcy Sends Shivers Through CLOs And BDCs [https://seekingalpha.com/article/4828327-first-brands-bankruptcy-sends-shivers-through-clos-and-bdcs]
* Red flags at First Brands ignored by creditors [https://seekingalpha.com/news/4503159-red-flags-at-first-brands-ignored-by-creditors]
* Morningstar sees limited fallout from First Brands on financials, auto, direct lending sectors [https://seekingalpha.com/news/4503319-morningstar-sees-limited-fallout-from-first-brands-on-financials-auto-direct-lending-sectors]