Belgian state to reinsure credit insurers and maintain limits during crisis

State-owned Belgian export credit agency and private credit insurer Credendo has agreed to reinsure credit risks worth close to €60bn a year written by leading credit insurers active in the country, to maintain limits on offer to Belgian companies. The move follows news that trade credit insurers are in talks with the UK government over a possible reinsurance backstop, as the two countries follow the lead of Germany, France and the Netherlands. Credendo – Export Credit Agency, acting on behalf of the Belgian state, and each private credit insurer, have signed a memorandum along with Assuralia, the Belgian insurance association, to conclude a bilateral reinsurance treaty as soon as possible. Credendo explained that under this agreement, credit insurers will keep credit limits used in the 12 months preceding 1 March 2020 as intact as possible until the end of the 2020. “In this way, trade relations and flows can be maintained,” it stated. “In the context of the Covid-19 outbreak and in order to counter its harmful impact on the economy and trade, a memorandum of understanding concerning a reinsurance programme for private credit insurers providing short-term commercial credit insurances (less than two years) by the Belgian State was signed on 21 April 2020 by the minister of finance; the minister for economy; the minister for security and the interior, in charge of foreign trade; Credendo – Export Credit Agency; Assuralia; and credit insurers Atradius, Coface, Credendo – Short-Term Non-EU Risks, Credendo – Excess & Surety, and Euler Hermes. The negotiations took place under the aegis of the National Bank of Belgium,” explained Credendo. “Together, the credit insurers that signed the memorandum have credit limits covering a total of more than €57bn worth of invoices for the benefit of their insureds located in Belgium. This shows the essential role of credit insurance in the economic development and business life in Belgium,” it continued. “Due to the consequences of the Covid-19 pandemic, the risk of non-payment by customers has become such a concern that credit insurers should, in accordance with normal procedures, reduce the credit limits granted to the customers (debtors) of their insureds. This results in a risk of a lack of credit insurance for trade receivables in the private market. The reinsurance programme by the state is intended to mitigate this risk for insured companies located in Belgium for their commercial transactions with buyers (debtors) based both in Belgium and abroad,” added Credendo. In return for the commitment to maintain limits on offer, Credendo – Export Credit Agency will reinsure the risks underwritten by the credit insurers. Under the reinsurance programme, the credit insurers will continue to bear a “substantial portion” of the risk underwritten, explained Credendo. This portion will evolve according to loss ratio, it added. Credendo will set up a reporting system to monitor the credit insurers’ commitment. This will consist of monthly reporting on the evolution of existing credit limits. “It goes without saying that the confidentiality of commercial data is guaranteed. If requested by the state, the credit insurer will be required to briefly explain the basis on which it took a decision, in order to demonstrate that it does not act arbitrarily,” stated Credendo. Earlier this week, the Association of British Insurers (ABI) confirmed it is in discussions with its government about the “scope for temporary state support” to ensure that businesses can continue to obtain credit cover that “meets their needs”. The talks are being led by UK business secretary Alok Sharma, who met insurance industry representatives, including the ABI and the British Insurance Brokers’ Association, last week. The UK Treasury, Financial Conduct Authority and Prudential Regulation Authority are also involved in the discussions, according to reports in the UK media. The German insurance association – the GDV – has given further details about the deal struck with its government to support credit limits for German businesses during the crisis. It said the emergency alliance formed by credit insurers and the government enables credit insurers to keep offering their clients cover for credit lines for some €400bn of business. “A guarantee provided by the federal government allows the insurers to take on more risk than would be allowed under normal underwriting circumstances. This way, the emergency alliance stabilises supply chains, prevents chain reactions and bolsters confidence in the economy’s stability,” explained the GDV. The association added that as part of the emergency arrangement, the federal government will guarantee €30bn worth of compensation payments by credit insurers from March to the end of 2020. In return, credit insurers commit to maintain their current level of coverage for roughly €400bn worth of credit lines. On top of that, credit insurers cover losses up to €500m themselves, bear the default risks in excess of the government guarantees and transfer two thirds of total premiums for 2020 to the government. In 2019, premium income amounted to €817m. The arrangement between the federal government and credit insurers applies retroactively for compensation payments from March 2020 and expires at the end of the year. To implement this arrangement, credit insurers will enter into bilateral agreements with the federal government, stated the GDV. “The shared goal of the federal government and credit insurers is to stabilise their clients’ supplier relations with companies that were economically healthy before the coronavirus pandemic and are experiencing difficulties because of the fallout from the pandemic. The federal guarantee isn’t a licence to enter into risky transactions with buyers whose economic stability had already been questionable before the coronavirus pandemic. The insurers keep monitoring and assessing the creditworthiness of buyers, thereby assuming a critical risk assessment function for their clients. In cases of particularly poor credit development, credit limits can still be reduced,” explained the association. On 10 April, the French government introduced a public reinsurance arrangement worth up to €12bn for credit insurance that has been approved by the EC.

Belgian state to reinsure credit insurers and maintain limits during crisis

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