New biz volumes in export credit and investment fall even as claims paid rise: report

M Somasekhar Hyderabad | Updated on October 28, 2019 Published on October 28, 2019

Global insurers have reported declining volume of new commitments alongside a 21 per cent increase in claims paid, citing uncertainty fuelled by increasingly negative trade policy and deteriorating macro-economic conditions.

This latest global data for the export credit and investment insurance industry confirms a challenging trade environment in the first half (H1) of 2019. It was presented at a meeting of 220 senior executives of the export credit and investment insurance industry, who had gathered at Hyderabad for the 2019 Annual General Meeting of the Berne Union, hosted by ECGC India.

According to the trends, insurers of short-term trade credit (ST) reported $1.7 trillion aggregate credit limits issued at the end of June ― no real change since the end of 2018, reflecting a lack of growth in underlying trade volumes.

Insurers of medium and long-term export credits (MLT) reported a significant 27 per cent drop in new commitments, compared to 2018: $59 billion in new cover and lending in the first half of the year. This is most pronounced in a 48 per cent decrease in new commitments towards corporate obligors, largely located in North America and ASEAN.

Exports of capital goods have suffered due to investment uncertainty, financial constraints on emerging economies and a decline in the number of ‘mega-deal’ project transactions materialising in pipelines since last year, a statement from the Berne Union Secretariat said.

$27 billion in new cover of Political Risk Insurance (PRI) is a 50 per cent increase relative to H1 2018. The size of the increase is heavily influenced by the investment portfolio of a single large member. PRI providers in general have indicated a modest increase in demand / enquiries for this product and expressed a robust appetite for select risks.

The Berne Union members paid just over $3 billion in claims for H1 2019 ― $1.5 bn for MLT, $1.3 bn for ST and the remaining for PRI. Overall, this is 21 per cent up on H1 2018. In ST business, Latin America and Europe saw the largest percentage increases in claims payments. North America was the only region not to see an increase in claims/exposure ratio. Latin America dominates MLT claims by any measure. Along with Sub-Saharan Africa it saw the biggest percentage increases.

The Statement said, notable in MLT business is the continued increase in political claims (as opposed to commercial non-payment) which, although still only accounting for 31 per cent, have risen steadily from just 10 per cent in 2016.

Beatriz Reguero, President of Berne Union, said, “Trade is facing a huge number of risks globally. Many of these are interconnected and affected by a complex mix of political, social, structural and cyclical factors. Understanding and protecting against these risks is the business of the export credit and investment insurance industry, and the collective perspective of our industry, seen through the lens of the Berne Union, acts as a powerful barometer of the health of international trade, generally.”

Secretary General, Vinco David, added, “The most powerful factor negatively affecting trade at present is the high degree of uncertainty facing businesses. Under these circumstances it is unsurprising that we see lower volumes of insured trade than last year. With a number of hotspots facing specific economic and political challenges we also expect to see a continuation of elevated claims. Although the trade environment is certainly deteriorating, the export credit and investment insurance industry is well placed to manage the risks in support of exporters and investors.”

The Hyderabad meeting was the fourth General Meeting of the Berne Union hosted in India by ECGC, which has been a member since its foundation in 1957.

Geetha Muralidhar, Chairman and Managing Director, ECGC, said, “India is committed to multilateralism in every field of activity that assists in growth and prosperity for all. The countercyclical role of ECAs is the need of the hour to mitigate the heightened risk situation affecting world trade today and the deliberations in this AGM will enable augmentation of the specific role.”

The Berne Union is the international association of export credit and investment insurers. The 85 members include government-backed export credit agencies, private credit and political risk insurers and multilateral agencies from from 73 countries – representing all aspects of the industry worldwide.

Published on October 28, 2019
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