Members of the International Union of Credit and Investment Insurers (Berne Union) and the International Credit Insurance and Surety Association (ICISA) have signalled high levels of claims for 2016 in the latest joint industry member survey. Data trends suggest a peak, with claims for 2015 and 2016 higher than any time since the global financial crisis. This comes in part as a consequence of increased insolvencies in a number or regions worldwide, notably Africa, Latin America, Asia and MENA.
Short-term trade credit insurance
Trade credit insurers anticipate that these highs will continue through 2017, especially in Latin America and to a lesser extent in MENA, where further losses are expected over the course of this year. On the other hand, trade credit insurers have also reported increasing volumes of new business in 2016.
Indeed, overall risk appetite amongst trade credit insurers remains high, and with this growth trend expected to continue in 2017, the core markets for trade credit insurance – Europe especially – remain stable and very soft with respect to pricing, despite the increasing claims.
Since the start of the global financial crisis in 2008, credit insurers have paid claims of around EUR 56 billion, compensating banks, traders and exporters for losses suffered due to defaults by buyers or other obligors, providing a stabilising function and ample support for international trade.
Medium & Long Term Export Credits
Demand for, and claims under medium and long-term export credit insurance of capital goods and infrastructure works are indicative of the economic health of emerging markets. Here, with 61% of respondents reporting an increase in insured business over 2016, Berne Union members have indicated strong growth in Africa, in particular – feeding the infrastructure boom and investments in power and extractive industries.
However, the crash in commodity prices has put pressure on the economies of many countries dependent on these exports and in line with the high business volumes, members have reported a significant rise in claims and insolvencies.
These trends are expected to continue, with increases in both claims and new business in Africa, MENA and Latin America for 2017.
This mixed outlook extends also to other markets – Berne Union President, Topi Vesteri, comments; “Our members´ new business in developed industrial countries, such as the United States is striking.” But the drivers here are different, and he adds that; “Demand in these markets is rather characterised by large transaction sizes, long tenors and the constrictions on commercial lenders’ ability to commit their balance sheets for long term lending without ECA support.”
For 2016, surety bond claims stabilised at 2015 levels. Increase in demand for surety bonds was reported in Europe, Asia and North America. For 2017 this trend is expected to continue.
Most markets continued to be soft, although a modest hardening is seen in Africa and MENA. The outlook for 2017 is a continued soft market with exceptions in Africa and MENA.
Jos Kroon, President of ICISA, comments: “The increased market demand for surety bonds is encouraging, although soft market conditions can cause a mismatch between risk levels and premium earned.”
ICISA press release