German industry and credit insurers feel the effects of Russian sanctions

"This [issue] is the greatest danger for the German economy at present," said Mr Meurer. Ongoing tensions over Ukraine pose little direct threat to German companies. But German firms are likely to feel the effects of sanctions against Russia and counter sanctions from Russia itself introduced as a result of the turmoil. Mr Meurer expects the problems to cause a 0.2% fall in Germany's gross domestic product in 2015.hideGerman companies are no longer permitted to export certain goods to Russia because of German and European sanctions. Russian companies are also refusing to accept certain agricultural goods as part of counter sanctions. Many German companies with strong trade ties to Russia are affected, especially those active in mechanical engineering, motor and chemical industries. The problems faced by German business was highlighted by Russia's recent cancelation of a gas pipeline project known as South Stream. This move affected German-based Salzgitter AG that was set to deliver materials for the project. Salzgitter AG has already announced that its credit insurer, Euler Hermes, will cover the main bulk of the losses. Mr Meurer, who currently heads Euler Hermes Germany, did not want to comment on the extent of the losses. The raft of sanctions in place over the Russia Ukraine conflict have led to less trade and therefore demand for credit insurance to cover economic risks such as payment defaults caused by insolvency of Russian buyers. However, Mr Meurer confirmed that there is greater interest from German companies in political risk cover to protect assets. The increased demand for political risk insurance has not compensated for the fall in demand for credit insurance and so overall premium volume has fallen for German insurers, said Mr Meurer. The current recession in Russia is causing credit insurers further headaches. Although Mr Meurer said claims have not yet increased as a result, he noted an uptick in Russian companies going into payment arrears. He expects the number of bankrupt companies in Russia to increase by 10% next year. "However, German credit insurers will continue to provide cover for German companies doing business with Russia," Mr Meurer stressed. Credit insurers are expecting a 2% rise in bankruptcies at Germans firms to 25,000 in the coming year. This compares to 24,500 bankruptcies this year. This projected increase in 2015 is likely to be caused by stalling economic growth in China and Europe as well as the recession in Russia resulting in declining exports. Mr Meurer expects more bankruptcies in the paper industry (up 9%) and the transportation industry (up 8%). "The retail sector is also at risk," he said. Credit insurers have seen relatively few losses this year. Claims expenditure has fallen by 33.7% to €423m in the first nine months of 2014. "Very few large bankruptcies occurred," Mr Meurer said. Companies affected were mainly small to medium-sized enterprises such as publishing house Weltbild, fashion house Strenesse and bicycle manufacturer Mitteldeutsche Fahrradwerke MIFA. While credit insurers had to pay an addition €269m in claims for prior years, the overall claims burden will be slightly less than 2013, Mr Meurer added. German credit insurers' premium income fell in the first nine months of this year by 1.5% to €1.1bn, while the amount of risk covered rose by 5.4% to €387bn. The amount of sureties and guarantees taken on by credit insurers rose by 3.8% to €40bn. Mr Meurer will transfer to the personnel department of Allianz SE, parent company of Euler Hermes, next year. Michael Diederich will become the new head of Euler Hermes Germany. Mr Meurer will retain his position as chairman of the GDV's commission on credit insurance until the middle of May 2015. His successor will be chosen during the first half of 2015.

German industry and credit insurers feel the effects of Russian sanctions

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