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The export credit insurance market saw claims jump by more than 700% in Russia last year, as the industry grappled with the fallout of the Ukraine crisis and western sanctions, Berne Union research shows.

Short-term export credit claims involving obligors in Russia and the Commonwealth of Independent States (CIS) region increased by US$229mn from a year earlier, the union’s State of the Industry report for 2022 finds.

Payouts in Europe also rose by US$118mn year-on-year as businesses felt the indirect impact of Russia’s full-scale invasion, which disrupted supply chains for critical inputs and drove up commodities prices.

The data reveals how export credit agencies (ECAs) and trade credit insurers were stung by the Ukraine war, despite efforts to swiftly cut cover for Russian firms in the early weeks of the crisis due to financial and reputational risks.

The analysis by the Berne Union, a global association representing ECAs and private insurers, shows new short-term export credit business in Russia and CIS fell from US$34bn to US$16bn – by more than 70% – as insurers pulled back.

On a brighter note for the industry, overall claims paid out by ECAs and insurers on their policies fell to US$7.7bn – a decline of about US$1bn – following a 33% drop in claims in the transportation sector, the data shows.

That was despite the market undergoing a “difficult” year in terms of rising sovereign and corporate risk, the Berne Union says, with the economic fallout from the Ukraine crisis leading to high commodities costs, higher interest rates – as central banks battled to tame inflation – and a downturn in trade.

Going forward, the outlook looks uncertain for providers of medium to long-term (MLT) cover, with claims in this segment remaining “elevated” compared to before the pandemic and now growing in the infrastructure sector.

There have been increased indemnifications in the Middle East and North Africa, and Sub-Saharan Africa regions.

Arrears – or overdue payments by borrowers in the medium to long-term segment – rose by 11% or nearly US$8bn.

“Arrears have increased suggesting that the impact from sovereign and corporate defaults in 2022 and wider deterioration of corporate risk may yet feed into claims – particularly given the volume of outstanding commitments in markets that experienced bond defaults,” the organisation says.

The Berne Union says 2022 was an “unprecedented year” for sovereign bond defaults, with seven countries in total failing to pay their debt: El Salvador, Mali, Sri Lanka, Belarus, Russia, Ukraine, and Ghana.

 

Surging activity

The report also reveals how a boom in export credit activity in Europe and North America drove industry business volumes to record levels in 2022, as underwriters worked to meet demand from new clients.

Global export credit-related business surpassed pre-pandemic levels and hit “historic highs”, growing 5% year-on-year, to US$2.9tn, the Berne Union says, as ECAs and insurers backed trade flows in the wake of the Ukraine crisis.

All business lines registered an uptick in underwriting activity, with short-term volumes growing US$96bn – a 4% increase from the year before – while medium and long-term business jumped by US$16.7bn, or 15%.

However, the strong post-Covid bounce back was largely confined to developed nations.

“The impact of the pandemic has not been equal globally,” says Berne Union president, Maëlia Dufour. “While Europe and North America emerged from the pandemic, other regions have seen deeper, longer lasting impacts.”

New MLT export credits grew to US$42bn in the European market last year, a jump of more than US$10bn from the previous year and substantially higher than pre-pandemic levels. Boosts to volumes included major deals in Turkey and the UK.

But the data suggests that the flight to developed economies in Europe and North America is coming at the expense of regions with higher credit risks, such as parts of Africa.

MLT volumes in Sub-Saharan Africa continued to trend downwards, dropping to US$15bn in 2022, from US$22bn the previous year and US$28bn in 2019. Short-term export credit activity also fell US$2bn to US$58bn on the continent, in a sign that the risk appetite of commercial insurers remains subdued.

“MLT business in the pandemic-recovery phase has undergone a notable shift towards developed markets in Europe and North America as well as corporate obligors,” the Berne Union says, noting that corporate borrower transactions now account for nearly two-thirds of new MLT business, up from less than half in 2019.

 

Manufacturing boom

Much of the surge in export credit business in 2022 – both shorter and longer tenor – was propelled by the manufacturing sector.

Globally, short-term export credit business within manufacturing rose nearly 20% year-on-year to US$440bn.

New longer-tenor commitments, which tallies all MLT export credits, political risk insurance and other cross border credit products, totalled US$36bn for manufacturing. This was over 50% higher than the year before and an increase of nearly 90% – or US$18.9bn – since 2019.

The energy transition is also a driver of activity, with Berne Union members providing US$10bn in new longer-tenor commitments for the renewable energy sector in 2022 – nearly double the figure four years ago.

ECAs and insurers have dialled back their involvement in traditional energy sector projects in recent years, but renewable energy still only accounts for about 5% of total new longer-tenor commitments.

Such support is less than the US$12bn provided to the natural resources industry – which includes the exploration and extraction of hydrocarbons – and the US$18bn supplied to traditional energy projects.