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Export credit payouts hit record high as pandemic effects emerge

Berne Union members paid out a record US$9.2bn following claims and non-performing loans last year, with export credit agencies (ECAs) grappling with the after-effects of pandemic-related lockdowns. 

The association, which represents over 80 ECAs, private credit insurers and multilateral financial institutions around the world, says in a report published in August that the value of claims in 2021 was 4% higher than the previous year, and more than 25% above the total for 2019. 

The findings “continue a gloomy trend from last year as Berne Union members’ indemnifications were higher than last year which, at the time, was the highest amount indemnified in Berne Union’s history”, the Berne Union says. 

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Payouts largely arose from medium and long-term export credit transactions, it finds. Of the total claims paid, US$5.9bn related to longer-tenor business, a year-on-year increase of 17% and nearly two-thirds higher than the figure for 2019. 

This trend likely reflects for the first time the impact of Covid-19 on claims submitted to ECAs, the report suggests. 

“While many of the claims paid in 2020 were not directly related to the pandemic as of these were related to pre-existing issues, the majority of claims paid during 2021 were related to the pandemic or lockdowns,” the report says. 

As a result, 2021 “may represent the first year where the consequences of Covid were represented in longer-tenor claims”. 

“This is particularly clear when one looks at which sector these claims materialised in; transportation was responsible for almost 40% of all claims paid in 2021.” 

The findings were more positive for short-term export credit claims, which fell by 19% and resulted in payouts of US$2.5bn – the lowest short-term claims ratio recorded by Berne Union members in over a decade. 

This is partly due to a rise in demand for goods and a corresponding increase in commodity prices during 2021, with cover for commodities transactions experiencing the highest growth rates among Berne Union members. 

The report also says short-term business has been propped up by government support measures introduced since the start of the pandemic, which helped prevent insolvencies and defaults that might otherwise have resulted in claims during 2021. 

However, Michal Ron, president of the Berne Union and chief international officer at Italian ECA Sace, says it is unclear levels will remain low once debt can no longer be rescheduled. 

“As we emerge into the recovery phase the question remains how much of this has been simply kicking the can down the road,” she says. “Is there a reckoning still to come in corporate insolvencies, delayed but not avoided by government interventions?” 

For Ron, the recovery must focus on restoring capital investment to pre-pandemic levels, particularly for medium and long-term export credit transactions. 

Such transactions “rebounded considerably in 2021, after a huge drop in the immediate aftermath of the pandemic”, she says. “But new commitments have not yet returned to the levels of 2019, and the recovery we have seen has been unevenly distributed, with developing markets still seeing a slower return than developed ones.” 

Longer-tenor business in North America and Europe is outpacing growth in Sub-Saharan African and South Asian deals, the Berne Union says. Globally, just 6% of new commitments undertaken by members in 2021 are categorised as medium or long-term. 

Despite that, the report says export credit and political risk insurance have undergone two consecutive years of overall growth, measured by new commitments made. 

There are also signs of progress towards net-zero carbon emissions targets, a growing priority for the Berne Union and the focus of a cross-industry working group established in March this year. 

“It is important to see that insurance cover for renewable energy is rising rapidly while cover for traditional energy sectors – energy and natural resources – are showing a clear downward-going trend,” the report says. 

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