GVNW wants credit insurance protective shield extended into 2021

GVNW is hopeful that federal government extends the credit insurance protective shield introduced during the early stages of the Covid-19 outbreak in Germany as credit insurers withdrew coverage in the face of rapidly escalating losses. The German government worked with the leading credit insurers – Atradius, Euler Hermes and Coface mainly – to introduce the protective shield to safeguard German businesses’ supplier credits. The government agreed to guarantee €30bn worth of compensation payments by credit insurers from March to the end of 2020. In return, credit insurers committed to maintaining their coverage of roughly €400bn worth of credit lines. On top of that, credit insurers agreed to cover losses of 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. Ron van het Hof, CEO of Euler Hermes in Germany, Austria and Switzerland, said at the time: "We are at a turning point for the German economy. And we are there for our clients in these times. We joined forces with the German government at a very early stage to support German companies in these difficult times. This is particularly important for the many SMEs in Germany. We must ensure that previously healthy companies continue to have sufficient room for manoeuvre and that supply chains are maintained wherever possible. “The primary goal is to stabilise confidence in trade. It is the backbone of the economy. The agreement we have now reached enables us to maintain our cover for precisely these previously healthy companies, prevent chain reactions and thus make an important contribution to the German economy and companies,” he added. This essential and rapidly worked out solution was welcomed by GVNW. But, as concerns over the level of insolvencies and credit problems worldwide continue to rise, it believes the protective shield needs to be extended beyond the end of this year. Atradius recently published a report that warned of a huge spike in global insolvencies, hinting that governments should consider extending state-backed credit insurance schemes, such as the protective shield in Germany. Atradius expects a 26% increase in global corporate insolvencies, largely in the second half of 2020. It said that the increase will mainly be driven by the impact of Covid-19 on global economies. It forecasts that every major economy, except for China, is expected to enter recession this year. The depth and length of recessions will be determined by the ability of economies to manage health regulations and either exit lockdowns or thrive in social distancing. Atradius chief economist John Lorié said: “Government measures have reduced the anticipated increase in bankruptcy filings in a range of ways. They have either shifted the threshold for filing, reduced debtor’s ability to force bankruptcy, or provided sufficient financial support to delay filings. However, as the support programmes begin to expire, the number of filings should climb rapidly.” The German government has reportedly accepted that the protective shield may need to continue beyond the end of this year because of the dire economic outlook. Alexander Mahnke, president of the GVNW, said during his opening speech yesterday, that this was very welcome news. He hopes that a solution will be found that prevents credit insurers from withdrawing cover and therefore leaving supply chains exposed. “In credit insurance, customers faced challenges in working with their insurers early on in the Covid-19 crisis. From the perspective of the policyholder community, it is gratifying that the federal government and the German credit insurers created the so-called “protective shield” for trade credit insurers in April, with the federal government guaranteeing compensation payments from credit insurers of up to €30bn for 2020,” said Mr Mahnke. “We very much hope that solutions will be found beyond this period that will help prevent credit insurers from withdrawing the limits that are so important for securing supply chains for their customers. Talks about an extension of the protective shield have been announced for September,” he added.

GVNW wants credit insurance protective shield extended into 2021

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