Export credit agencies (ECAs) and trade credit insurers have hurriedly axed coverage for Russia and Belarus as the deepening conflict and western sanctions interrupt trade and major projects.
At least 10 ECAs have stopped or limited coverage for the two countries since late February, when Russian President Vladimir Putin launched an invasion of Ukraine. Many ECAs have also suspended coverage of Ukraine.
A GTR analysis found some ECAs have substantial exposures to Russia, meaning governments in Europe and elsewhere may be on the hook for substantial payments to exporters and banks which have made use of guarantees and other forms of coverage.
ECA exposures to Russia range from the relatively modest A$3mn of Export Finance Australia to the substantial €1.7bn on the books of Austria’s OeKB.
Other exposures disclosed to GTR or in annual reports include €1bn for Finnvera, Finland’s ECA; US$453mn for Sweden’s EKN; US$428mn for the US Export-Import Bank (US Exim); and €170mn for Poland’s Kuke.
ECAs which may have significant exposures but did not respond to questions or publicly disclose exposures include those in France, Italy, Japan and Spain.
Mike Freer, a parliamentary under-secretary for the UK’s international trade ministry, said in response to a written question from an opposition MP last week that UK Export Finance (UKEF) has £49.9mn in remaining exposure to buyers in Russia.
UKEF declined to respond on the record but GTR understands the agency’s total exposure relating to Russia is just over £100mn.
A spokesperson for Atradius DSB, the Dutch ECA, declined to disclose its exposure but says it is “not significant”.
Those ECAs which have already stopped coverage for Russia include Atradius DSB, EKN, Denmark’s EKF, Exim Hungary, Italy’s Sace and export guarantees offered by the German government. US Exim and Export Development Canada (EDC) had halted business with Russia in 2014 following its annexation of Crimea.
The Export Credit Guarantee Corporation of India has not halted coverage for Russia but says in a statement that it moved the country to a type of coverage under which revolving limits are approved on a case-by-case basis.
Many agencies have also paused coverage of Ukraine, both due to the invasion and the Ukrainian central bank’s ban on overseas payments, put in place last month in order to shore up its foreign currency reserves.
A spokesperson for EDC, however, says it “remains open on a restricted basis” to Ukraine.
“We remain committed to Ukraine and will continue to engage with Canadian exporters and investors who have exposure in the market, or are interested in the market and will seek opportunities to support where possible.”
Belarus, which is supporting Russia in the invasion, is also subject to coverage bans by many of the ECAs.
ECAs are now working to assess how much of their exposures are likely to convert into payouts to banks or exporters who have taken out cover.
A spokesperson for Kuke says the volume and value of claims is “difficult to assess” at the moment. “As of now we have dozens of applications for vindication, however the amount of claims reported is very low,” they tell GTR. “We expect the peak to come in May.”
OeKB is “monitoring the situation very closely and continuously assessing the risk situation in close consultation with Austria’s Federal Ministry of Finance”, a spokesperson for the agency says.
Major fossil fuel projects in Russia have also attracted ECA and public finance support in recent years.
The Japan Bank for International Cooperation (JBIC), the country’s export-import bank, in December last year announced a €1.71bn loan to the Arctic LNG 2 project in Siberia alongside state-owned Chinese lenders and Russian banks VEB and Sberbank, which have since been hit with sanctions. A spokesperson for JBIC declined to comment.
Sace, the Italian ECA, was last year planning to provide coverage to the same project, Reuters reported. A spokesperson for the agency declined to comment.
Bpifrance, a state lender which also acts as France’s ECA, was reportedly set to provide cover to the project, but later pulled out.
The ECA’s overall exposure to Russia is unclear and it did not respond to requests for comment. An overview of the French agency’s export division’s activities in 2020, published last year, says it met with several Russian banks in early 2020, who it says showed “a strong interest in the enhanced guarantee, the financing of our export contracts, and the use of our guarantees via their European subsidiaries”.
The private market?
Private credit and political risk insurance (CPRI) providers have also moved speedily to limit fresh cover for Russia and Ukraine-related deals, as concerns mount over reputational risks and a potential wave of non-payment issues.
Euler Hermes says it had already been taking a “very conservative” approach across Russia and Ukraine in recent years, but in the wake of the latest crisis has taken “additional measures” and adjusted its underwriting strategy further.
The insurer says in a statement this week it is no longer accepting “new or additional coverage” on Russia and Ukraine’s market.
GTR understands this move would prohibit any fresh coverage for Russian and Ukrainian exporters, but it does not necessarily rule out the possibility of Euler Hermes extending new cover to foreign companies – for instance those based in Western Europe – looking to trade into these nations.
“It is evident that there has been a drastic drop in export volumes to Russian buyers from our policyholders, as they exercise the due care and prudence expected in such situations,” Euler Hermes says.
“Consequently, we will be adapting our exposure accordingly and we will support customers that may still need to trade by exception, as long as this is permissible from a sanctions perspective,” it adds.
The insurer has also changed its Russia risk rating to the highest possible level of D4, a ranking Ukraine has held since 2015.
Coface did not directly respond when asked whether the firm was cutting any new cover for Russia-related business, but a spokesperson tells GTR its exposure to the two countries involved in the conflict represents less than 1% of its total exposure.
The insurer has likewise downgraded its country risk assessment for Russia from B (fairly high) to D (very high).
“In this complex environment, Coface will continue to support its clients according to the specific situation of each sector and company, and in strict compliance with international sanctions,” the spokesperson adds.
Atradius, another major private insurer in Europe, could not be reached for comment.
While insurers have not ruled out new transactions involving Russian or Ukrainian firms altogether, industry figures say it is highly unlikely underwriters will be writing any fresh business for these markets currently.
Matthew Strong, CEO for credit specialties UK & Ireland at Marsh, says trade credit insurers will have paused considering new business for Russia and Ukraine.
“This is due to the significant deterioration in risk environment following the invasion as well as assessing how sanctions will have an effect as the industry works to fully understand measures imposed by the US, EU, UK and other allied countries,” he notes.
“Frankly, to be increasing exposure in Russia or Ukraine right now wouldn’t be seen to be very prudent underwriting until the situation has become clearer, particularly with sanctions increasing almost daily, whether it be different jurisdictions, or in terms of the sectors targeted – just yesterday the US announced a ban on Russian oil and gas.”
“We don’t know of any underwriters that are providing open cover for exports to Russia. This is due to the current risk of nonpayment due to sanctions and the negative impact these government actions have on organisations within the target country,” Scott Ettien, global head of trade credit at broker Willis Towers Watson, tells GTR.
He adds the effects of sanctions and the move to block certain banks from Swift could create “transfer risk” issues whereby Russian companies are unable to pay for imports, even if they wanted to.
Andrew van den Born, global head of CPRI for financial institutions at Willis Towers Watson, tells GTR insurers may also be wary of reputational damage, as media and public scrutiny zeroes in on western companies who are continuing to conduct business in Russia.
The bulk of the short-term credit insurance market’s exposure is likely linked to European corporates, for instance those exporting retail goods such as textiles, electronics and food into Russia, industry sources say.
According to van den Born, banks and their credit insurers have already drastically cut their exposure to Russia since 2014 when the US and EU slapped economic sanctions on the country over the annexation of Crimea.
“The market used to write a lot of 12-month revolving facilities to Russian banks such as Sberbank and VTB Bank, but banks pulled out of that business following the sanctions back in 2014. Likewise support for pre-export finance facilities provided to Russian companies has significantly reduced over the years,” he says.
Nonetheless, he says insurers are still likely to face payment default claims from financial institution insureds in the months ahead and notifications are already starting to come through.
Dutch bank ING revealed this week that it has up to US$6.7bn of Russia-related exposure, with as much as US$1.3bn covered by CPRI and US$0.9bn by ECA support. The lender declined to comment when asked whether it planned to invoke these policies in the coming months.
In any case, claims made on short-term trade credit insurance policies could take some time to appear.
A typical policy tends to kick in sometime between 90 and 180 days after a payment is due, although Ettien adds there are events that could trigger a claim prior to that, such as a Russian company declaring insolvency or being unable to transfer money.
Laura Burns, US political risk product leader at Willis Towers Watson, says the firm is in the midst of drafting “many” notices of circumstance that could give rise to loss – the first step in the claims process – particularly with regard to forced abandonment cover and political violence in Ukraine.
She adds the broker is starting to see increasing interest among multinationals for PRI cover in Eastern Europe, amid fears the Russia-Ukraine conflict could yet spill over into nearby countries.