A more stable trade environment helped generate US$117.7bn in new medium to long-term trade credit insurance business in the second half of 2021, according to freshly released data, although soaring inflation threatens to undercut the bounce back.
A data snapshot released by the Berne Union, the export credit industry association, shows the medium to long-term sector beginning to rebound from the pandemic, with the US$117bn of new business representing growth of 13% compared to the same period in 2020, but still 12% down on pre-pandemic levels.
Short-term trade credit insurance has also notched up continuous growth – rising 14% on the second half of 2019 and 12% on the second half of 2020 to US$2.45tn.
In a statement released following its spring meetings in Istanbul, the Berne Union says that growth of 12% across all trade insurance types in the second half of 2021, compared to the same period in 2020, is “somewhat complicated” by the gradual rise in inflation last year, in addition to “fluctuating” exchange rates.
“The net outcome is a somewhat lower percentage increase, but likely still real-terms growth, largely due to sustained demand for short-term credit insurance throughout the year,” the association says.
Despite the growth in new business, and a relatively buoyant outlook by the Berne Union issued in October last year, Russia’s invasion of Ukraine has also cast a shadow over its forecasts.
“Just as we were emerging from one of the most economically challenging periods in modern history a fresh crisis has re-amplified risk and uncertainty, threatening the fragile recovery we have been nurturing over the past 12 months,” says Berne Union president Michal Ron, referring to the war in Ukraine.
“As an industry, our most urgent priority is to support businesses through the acute geopolitical and economic stress of the war, widespread inflation and lingering trade disruption. But equally important in the long term is ensuring that we are equipped to tackle the unprecedented structural adjustments driven by climate change and global energy transition.”
The gradual return to normality for the global transport sector – hit hard by lockdowns during the first two years of the pandemic – has underpinned much of the growth in the medium to long-term category, alongside increases in manufacturing and renewable energy.
The association says that renewable energy projects have proven resilient through the pandemic while coverage for “traditional” energy and natural resources have continued to decline since 2019.
Although the new commitments of US$6.8bn for renewable energy are relatively modest, the sector has grown by almost half on 2019 levels and continued growing throughout the peak of the pandemic. The number of members and countries reporting new commitments for renewable energy has also expanded, according to the Berne Union.
Claims reported by the association’s members – which include export credit agencies, multilateral organisations, insurers and commercial banks – reached US$9bn in the second half of 2021.
Claims remain “historically low” for short-term policies although they have more than doubled for medium to long-term business compared to the second half of 2021, with over half, or US$2.2bn, coming from the transport sector, it says.
“Members report an increase in claims situations arising through the first half of 2022 and are closely monitoring the impact of supply chain issues and rising costs, especially energy prices.”
There is also likely to be an uptick in claims in the broader credit insurance market. Trade credit insurer Atradius last month predicted a 132% jump in insolvencies, to 2,483, across the 30 markets it covers.
Insurers have warned since 2020 that the government support rolled out globally during the pandemic, such as loans and debt moratoriums, have only delayed the collapse of so-called “zombie companies” who will eventually become insolvent.