CM September 2020

OPINION
NEW
FEATURE
ALL SYSTEMS GO
UK support scheme receives EC go-ahead.
AUTHOR – Kevin Godier
Kevin Godier
THE European Commission
(EC) has finally approved
plans for approximately
€11bn (GBP £9.9bn) in
temporary UK state aid to
guarantee private trade
credit insurance (TCI) cover for British
businesses during the COVID-19 crisis. The
late July move ended a 10-week wait since
a mid-May Government pledge to backstop
excess losses that UK credit insurers may
suffer from offering such cover. Now, the
UK Government has effectively become
a reinsurer, able to shoulder 90 percent
of potential losses in return for a similar
portion of the participating insurers’
premium.
The state support scheme is the first of
its kind in the UK, adding to the protection
that TCI underwriters in Britain already
had in place against large losses through
their existing reinsurance programmes.
However, with multiple signals suggesting
that corporate payment defaults triggered
by the coronavirus outbreak could
outstrip levels experienced during the
One onlooker, Fitch Ratings, believes
that the trade credit backstops
provided by Governments in Europe
and elsewhere – as well as overall
measures to aid the global economy
– can help stem potential TCI losses
from the COVID-19 fallout.
global financial crisis of 2008/09, the TCI
industry has understandably adopted a
significantly more cautious approach to
B2B business activity. In a statement, the
EC explained that its approval for the UK
initiative aligned with European Union
(EU) state aid rules, on the grounds that
the economic fallout from the pandemic
has lessened appetite within the insurance
sector to cover businesses under trade
credit policies.
The backstop means trade credit
insurers in Britain can maintain the level
of protection offered to businesses before
the coronavirus outbreak. In the UK, TCI
provided cover for £171bn of business
activity at end-April 2020, covering 13,000
suppliers and 650,000 buyers, according to
the Association of British Insurers (ABI).
Essentially, the UK Government can now
pay 90 percent of TCI claims, with insurers
picking up the tab for the remaining 10
percent of losses. The scheme is open to
all trade credit insurers in the UK until
the end of the year, the EC said. All UKdomiciled
businesses with a trade credit
insurance policy can be covered for both
their domestic and export trade, and there
will be a review at the end of September on
potentially extending the scheme.
The move was welcomed by Atradius,
which confirmed the scheme is ‘now
in place and operational.’ The initiative
‘improves the trading environment for
those firms that purchase credit insurance
(our customers) and for the hundreds
of thousands of UK businesses that are
covered in our portfolio (our customers’
customers),’ according to an Atradius
spokesperson. This view was corroborated
by the ABI, which said the new scheme ‘is on
track to ensure that widespread availability
of cover can continue.’ It said that TCI
underwriters ‘have been considering their
involvement in the scheme, with a number
of major providers having confirmed
their participation.’ Atradius, Coface,
Euler Hermes, Markel Corporation and
QBE Insurance Group have opted into the
scheme, S&P Global noted on 2 August.
The delays were explained by one
participant as tightly linked to the
complexity and size of the agreement. ‘It
could be compared to an M&A deal, with
lots of moving parts, and last-minute
adjustments. The need for all parties – the
UK Treasury, the Department for Business,
Energy and Industrial Strategy, the ABI,
private TCI underwriters and the EC itself
– to agree took up considerable amounts of
time.’
One onlooker, Fitch Ratings, believes
that the trade credit backstops provided
by Governments in Europe and elsewhere
– as well as overall measures to aid the
global economy – can help stem potential
TCI losses from the COVID-19 fallout.
Fitch said that pandemic-related credit
insurance claims will peak in late 2020
and continue well into 2021, after which
credit insurers’ financial performance
should then improve as they re-underwrite
business at higher prices to recoup losses
and meet higher demand.
Kevin Godier is a freelance journalist and
editor of International Trade Finance.
Advancing the credit profession / www.cicm.com / September 2020 / PAGE 29