The German export insurer Euler Hermes has ceased to provide coverage of exports to Greece, due to uncertainty about the country’s future in the eurozone.

The continuing eurozone crisis and the failure of the recent Greek election to establish a majority in parliament has resulted in the insurer stating on May 30 it will “not cover any new shipments to Greece until further notice”.

“Euler Hermes’ central scenario is that Greece will remain in the eurozone. However, due to the recent economic developments and political uncertainties, exporting to Greece has become significantly more risky. Therefore, Euler Hermes decided to reduce its export cover on Greece in order to protect its clients,” it stated.

The insurer confirms that shipments already made remain insured and that if the situation improves, Euler Hermes will reconsider its decision.

This decision follows earlier reports this week that it was considering a review of its Greek cover.

A Greek exit from the eurozone would increase the risk that Greek companies would fail to pay their invoices as they switch back to the drachma. The introduction of the new currency would see a 50% or more currency depreciation which would affect all foreign outstanding debts and receivables held by Greek buyers.

Trade credit insurers will be tentatively watching developments in Greece in the run-up to the new elections in mid-June and potentially looking to review their exposure to the country.

Exporters have also been attempting to get cover from insurers on their exports to Greece. Typically most exports within
Europe have been uninsured and conducted on an open account basis.

Richard Talboys, executive director, political & credit risks, financial solutions at Willis tells GTR: “On the broker side, we have seen a surge of interest in bolting the stable door after the horse has gone covering single transactions in Greece.”

“Also there is quite a lot of analysis of policy wordings. But until any exit occurs and we know the terms of that exit – and how the currency translation into drachma will happen and then trying to match that with policy wording – it is hard to give answers. Are we covered if Greece exits the euro? Well it depends on the nature of any default, your contract and the nature of the exit.”

A spokesperson from Atradius adds that they are reviewing their exposure on an individual basis, but for now will continue to cover Greek risks: “We are closely monitoring developments in Greece and assessing the default risk of every Greek company, case by case.”

“We continue to cover reasonable risks on new supplies to Greece. Where we anticipate a very high likelihood of future payment default by a buyer, we reduce cover. But we continue to cover reasonable risks on many buyers.”

Euler Hermes released a report in late May that revealed that the eurozone crisis is leading to increased business insolvencies across the world.

After a drop of 4% in 2011, Euler Hermes expects its Global Insolvencies Index to rise by 3% in 2012.

“The decline in corporate insolvencies has lost momentum, hampered by the slowdown in the world economy in the second half of 2011. This reversal of trend is now confirmed, with very weak growth figures in the first quarter of 2012,” says Ludovic Subran, chief economist and director of research at Euler Hermes.

In 2011 business insolvencies fell across the world except in Europe. There was a 6% decline in Asia Pacific compared to a 7% increase in business failures in Europe. Southern European countries are particularly suffering from rising insolvencies.

“In these countries, 2011 was another bad year that tarnished an already very weak picture. Business failures have reached record levels there and economic forecasts do not point to any improvement in 2012, with high risks of contagion if the debt crisis is not resolved,” comments Maxime Lemerle, head of macroeconomic and business insolvency analysis at Euler Hermes.