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Claims begin to stabilise as short-term business booms: trade credit data

Claims paid out by public and private trade credit insurers partly stabilised in the first half of this year following record payouts in 2021, data published by the Berne Union shows, but the war in Ukraine is tipped to lead to further short-term claims.

The trend since 2019 has been a steady drop in the value of claims under short-term trade credit policies while claims under medium and long-term (MLT) have soared.

Short-term claims totalled US$900mn in the first six months of 2022, a 10% fall compared to the same period last year, according to the Berne Union, an association of private and public trade credit insurers.

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But it says members are beginning to see increases in short-term claims “in individual countries where insolvency levels are returning to normal, as well as notable hot-spots related to the war in Ukraine, even if these have not yet lifted the overall portfolio”.

“Reports from some members of increasing payment delays in pre-claims situations may indicate a long-anticipated return to ‘normal’ [levels of claims] towards the end this year,”  it says in a note released on November 11, during its annual general meeting which took place in Kigali. The data covers the first six months of 2022.

The data also reveals that short-term trade credit to Russia, Ukraine and Belarus – a strong supporter of Russia’s February attack – plummeted by 42% in the first half of 2022, and claims tripled, although to a relatively modest US$51mn.

Many export credit agencies (ECAs) halted cover for all three countries after the invasion, although some have since restarted underwriting trade with Ukraine in a bid to provide economic support. Kyiv’s own ECA called for help from its peer agencies in Europe and further afield earlier this year as it tries to prop up the country’s battered exporters.

Globally, MLT claims remained largely stable, falling by 4% to US$1.95bn in the first half of 2022, but are still 13% higher than in the first half of 2019. The Berne Union expects those levels to remain high due to significant risks in the transportation sector and the “broadly challenging global economic environment”.

But the wider insurance picture has been brighter, with short-term business rising 10% year-on-year during the period, fuelled almost entirely by growth in the provision of private cover.

The association’s report says much of the growth can be attributed to the higher commodity prices seen since the beginning of Russia’s invasion of Ukraine, with underwriters also reporting high utilisation and bumping cover limits for existing clients.

MLT business has not yet returned to pre-pandemic levels and is concentrated in wealthy countries, it says, with ECA business still “subdued”.

While overall Berne Union members committed to covering US$44bn of trade and cross-border investments in Sub-Saharan Africa in the first half of 2022, it says that a lack of MLT cover provided to the region is a sign that long-term finance for major infrastructure projects “is becoming more difficult to secure”.

MLT business in Sub-Saharan Africa fell by almost a quarter compared to the first half of 2021, according to the data. At the same time, new political risk insurance commitments in the region hit US$3.9bn in new business, the highest figure since 2017, which the Berne Union says is a signal that investors see Africa as being more risky.

Michal Ron, the organisation’s outgoing president, called for better co-operation between project stakeholders such as financiers, investors, development finance institutions and insurers and announced the establishment of a working group to “promote collaboration” in the region.

“Export credit has a huge role to play in delivering the finance, technology transfer and know-how which will contribute to Sub-Saharan Africa’s development over the coming years, particularly in areas such as energy transition and other aspects of climate finance which are so badly needed,” she says.

The Kigali meeting marked the end of a two-year term for Ron, the chief international officer at Italian ECA Sace.

Members elected in her place Maëlia Dufour, the head of international relations for France’s ECA Bpifrance. Benjamin Mugisha, chief underwriting officer for pan-African insurer the African Trade Insurance Agency, was chosen as vice-president.

Dufour says “it is a great honour for me to take on the role of BU president, particularly in the current environment when we are facing so many critical challenges globally”.

“I am excited… to tackle the most demanding, and most important challenges facing our industry today, including advancing the leadership of export credit in global efforts to solve the climate crisis, and finding creative solutions to continue supporting trade and investment in all regions, even as the risk environment increases.”

The post Claims begin to stabilise as short-term business booms: trade credit data appeared first on Global Trade Review (GTR).

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