Euler Hermes was vilified by the food and drink industry after the trade credit insurance crisis plunged the supply chain into chaos last September. A year on, its defiant UK boss, Fabrice Desnos, tells James Ball why he took such a hardline stance - and warns he'll do it again if he has to

If there were an award for the most popular man in fmcg, Fabrice Desnos wouldn't even make the longlist. Desnos, the UK chief executive of the world's largest credit insurer, Euler Hermes, has been a vocal defender of an industry accused of causing a "credit crunch within the credit crunch" last September.

It's just over a year since trade credit insurance firms decided the market was becoming too volatile and either reduced or withdrew cover leaving suppliers unprotected against non-payment by their customers and smaller businesses unable to get overdraft facilities.

By the beginning of this year, 50% of large companies had seen their supply chains disrupted by the squeeze on trade credit insurance, according to British Retail Consortium research.

Even heavyweights such as Premier Foods and Bakkavör had their limits reduced. Smaller businesses were also hit hard, with a third reporting severe problems. Overall, 80% of retailers reported that at least 10% of their suppliers had been affected.

Yet Desnos, who oversees cover on £7.5bn of food and drink invoices from 12,000 UK companies, is unrepentant. The sector, he says, is shooting the messenger. Euler Hermes has been doing its job as the voice of reason, and doing it well and if that makes him a bogeyman, then so be it.

"I don't think we're in a popularity contest at all," shrugs the Frenchman. "Insurers rarely are. What matters to us is that we've carried out our job properly, conducted our service to the right standard, and applied our underwriting criteria consistently. That matters to me. Whether that's a popular job is almost irrelevant."

Almost irrelevant, but not quite. Desnos clearly feels his company's role is misunderstood and that his detractors don't appreciate that fundamentally, the insurer's role is to keep companies in business rather than condemning them to bankruptcy.

"Insolvent companies go completely against our interests, so saving companies is right in the DNA of our organisation," he insists. "But that message doesn't come across at all, which is frustrating."

Desnos says his job is to give companies a reality check, and admits it is often unwelcome. Despite the unprecedented market conditions last year, Desnos disputes claims that there was a major withdrawal of cover over the past year, arguing that the total level of cover in food and drink has fallen by only 10% to 15% since last September.

He is also baffled at the suggestion Euler Hermes' actions have not always been in its clients' best interests. "It's not as if last September suddenly we looked at companies with a very good credit score and said 'oh, let's cancel their limit'," he says incredulously. "The pace and extent of the economic crisis, especially in the second half of last year, was unprecedented. We were seeing companies go from good health to insolvency in the space of six months without giving many warning signs."

Describing his actions as "a symptom of the credit crunch, not a cause", Desnos believes that one of the reasons credit insurers have taken more than their fair share of blame for the crisis is that they've often been the bearers of bad news. Limit reductions, he says, are a form of advice that companies should use to reassess their customers.

"But companies tend to forget this advice, especially when their own sales are falling and they are under pressure to sell as much as possible, even if their own clients become too risky," he explains

The demise of Woolworths highlights the risks of ignoring unpalatable information, he says. Suppliers to Woolworths, such as confectionery business Zetar, complained that insurers withdrew cover in the months leading to the retailer's collapse, leaving them in the red when it folded.

Desnos reads the situation differently, claiming his clients were warned Woolies was in danger. "The advice we gave particular companies was to stop trading on credit with Woolworths. Some decided not to take that advice," he says bluntly.

Taking Desnos' advice might be optional, but accepting his limit reductions is not. Smaller businesses claim these reductions compound existing problems as their overdraft and working capital borrowing is often reliant on them possessing trade credit insurance.

Desnos' response to the charge that he is making life unnecessarily difficult for small businesses is surprising given his bullish stance up to this point. He immediately admits the chain reaction prompted by limit reductions has been a major problem over the past year, but outlines a way in which it could be avoided in future.

"Companies must not be afraid to tell us this is happening to them because we will take that into consideration," he says. "The last thing as a credit insurer we want to do is make our client fail. That is likely to bring claims from the client's suppliers, who we may insure too. That's exactly the risk against which we're insuring."

While he talks of flexibility for individual cases, Desnos is also quick to point out that Euler Hermes can't resolve the underlying problems of the credit crunch for everybody. "If we believe a company is simply not going to be able to pay its creditors, we are going to highlight the problem," he says, "and that creates tension."

Despite his claim of a relatively low level of cover withdrawal in the food and drink sector, he accepts that the industry has had its difficulties in this area over the past year. The defensive nature of the food and drink sector means it has not been hit by as many limit reductions as property, say, but it is notoriously low margin, which reduces the number of options available to the insurer.

If customers become riskier in a high-margin sector, Euler Hermes can increase its insurance premiums correspondingly. In a sector where margins of 2% are not uncommon, this option is not on the table, leaving limit reductions as the only feasible alternative. This, Desnos says, is the reason low-margin areas such as wholesale, distribution and cash and carry have experienced more cuts than others.

"Low margins make our life more difficult. If you're in a 2% margin sector, transactions need to be safe bets."

Euler Hermes' method of deciding which bets were safe this year has not been welcomed by the industry. In previous, calmer, years, cover was provided on the basis of Companies House accounts, which can be as much as 18 months old.

This year, insurers have been asking to see management accounts, often monthly, to track how businesses are coping in the fast-changing climate. This has led to rows with several businesses, including a very public spat with McCain, whose suppliers had cover withdrawn after the business refused to hand over its figures.

Desnos is happy to defend the policy. "When you're asked to assess a company in July 2009, the 2008 accounts are pretty much worthless," he argues.

However, he hints this approach is more of an emergency measure than a long-term strategy. "Two or three years down the road, as we come out of these turbulent times, we might take a different view and accept that historical accounts might be sufficient."

Insurance, Desnos says, is "strongly pro-cyclical", and so as the economy improves in the next two to three years, the terms he can offer to his customers will do so as well.

He is keen to try to strike a conciliatory tone, and explain the reasoning behind the decisions Euler Hermes has taken over the past year, but the bottom line is, if the numbers don't stack up, Desnos will say so whether the food and drink industry likes it or not.