Business
Global data for the export credit and investment insurance industry confirm a challenging trade environment in the first half of 2019 – Berne Union
Insurers reported a declining volume of new commitments alongside a 21% increase in claims paid, citing uncertainty fuelled by increasingly negative trade policy and deteriorating macro-economic conditions.
Hyderabad, 23rd October 2019 – A global delegation of 220 senior executives of the export credit and investment insurance industry are gathered in Hyderabad for the 2019 Annual General Meeting of the Berne Union, hosted by ECGC India.
Insurers of short-term trade credit (ST) reported USD 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% drop in new commitments, compared to 2018: USD 59 billion in new cover and lending in the first half of the year. This is most pronounced in a 48% 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.
USD 27 billion in new cover of Political Risk Insurance (PRI) is a 50% increase relative to 2018 H1. 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 selected risks.
Berne Union members paid just over USD 3 billion in claims for the first half of 2019, 1.5 bn for MLT, 1.3 bn ST and the rest PRI. Overall this is 21% up on the first half of 2018. In ST business, Latin America and Europe saw the largest % 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 SubSaharan Africa it saw the biggest % increases. Notable in MLT business is the continued increase in political claims (as opposed to commercial non-payment) which, although still only accounting for 31%, have risen steadily from just 10% in 2016.
Berne Union President, Beatriz Reguero comments that, “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 adds: “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 meeting this week is the 4th General Meeting of the Berne Union hosted in India by ECGC, who have been members since their foundation in 1957. It is also a landmark occasion for the Berne Union, which celebrates its 85th anniversary this year.
Quote from Mrs Geetha Muralidhar, Chairman-cum-Managing Director, ECGC: “India is committed to multilateralism in every field of activity that assists in growth and prosperity for all. We at ECGC, the Indian export credit agency, are proud to host the AGM of the BU on its 85th anniversary. The countercyclical role of ECAs is the need of the hour to mitigate the heightened risk situation affecting the world trade today and the deliberations in this AGM will enable augmentation of the specific role”.