British exporters are urging the country’s export finance agency to reduce its premiums, which they say are out of step with European rivals and risk discouraging UK companies from bidding for contracts.
UK Export Finance (UKEF) typically charges premium rates of 6% to 7%, according to an annual benchmarking report from the British Exporters Association (BExA), an influential industry group representing firms selling to overseas markets.
Those rates “eat too much into a typical export margin and are therefore a disincentive for the exporter to bid for an export contract”, says the report, published today.
“We would like to see a toning down of UKEF’s premium rates,” the association says. “We also ask that UKEF reviews the risk when pricing, and offers its best premium rate and supportive terms on its first response, rather than expect to be challenged.”
UKEF’s premiums are based on its level of risk exposure, as well as costs and long-term losses, the report explains. It also operates at no net cost to the taxpayer, and so aims to price risk over business cycles rather than on an annual basis, meaning income during times of growth covers claims during a downturn.
However, when taking into account the premiums charged relative to the total of claims paid out, BExA says there is a “significant divergence” between UKEF’s pricing and that of export credit agencies in Denmark, Spain, Austria, Sweden, Germany and the Netherlands – including over a full business cycle.
In total, the agency’s premium income between 2017 and 2020 exceeded its costs by £274mn, according to an analysis published last year by the UK’s public spending watchdog, the National Audit Office.
Concerns over UKEF’s premiums were previously raised during a parliamentary inquiry into its work, which concluded in September this year.
As part of that inquiry, BExA vice-president Susan Ross told the International Trade Committee that UKEF collected nearly three times as much income from premiums in 2019-20 than Dutch export credit agency (ECA) Atradius, from a similar number of clients.
Adrian Jones, trade and export finance manager at Dutch construction company Boskalis, told the inquiry that over five years, six European ECAs earned between one and 3.5 times more in premiums than paid in claims – while UKEF earned “between 45 and 50 times” more.
The committee acknowledged the value of protecting taxpayer funds and managing risk, but said it was “concerned” that the perception of UKEF’s approach to risk is acting as a deterrent to SMEs and potential exporters that may benefit from its support.
Another concern raised by BExA was that decisions “are not taken in a timely fashion”, in part because there are “too many departments with which to consult”.
“Short term transactional trade has a fast turnaround,” it says. “Exporters need to know the approximate price of cover to build into their sales price, and for decisions on cover and wording revisions to be made in a timely fashion.”
UKEF has lower staff productivity – calculated as the number of ECA users per member of staff – than agencies in Denmark, Sweden and Finland, as well as the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC).
Sources close to UKEF say the agency is committed to a high degree of risk management in higher-risk international trade, and aims to strike a balance between ease of use and protection of taxpayer money.
The BExA report also raises concerns over the ECA’s withdrawal from financing overseas oil and gas projects – a multi-government commitment made during November’s Cop26 conference – which it says could act as a “cliff-edge approach to financing” that may harm exporters’ competitiveness.
However, UKEF has previously faced pressure from campaign groups and climate change experts to end support for fossil fuels. Notably, a May 2021 report from the International Energy Agency called for an immediate halt to investment in new fossil fuel supply projects.
BExA praises UKEF’s work in other areas. It says the agency has stepped up to support exporters during the pandemic, increasing its business volumes, and that its export development guarantee and general export facility products are “game changers for UK exporters”.
UKEF chief executive Louis Taylor says he welcomes the association’s findings, adding: “At UKEF, we have undergone massive changes to make sure our products remain suitable for exporters facing today’s challenges and will also help them to grow in the future.
“We won’t stop there. By continuing to support more sustainable projects and working with organisations like BeXA to expand our offer, we will help exporters sell more of what is made in the UK to the world.”