Heightened geopolitical risk is driving growing demand for export credit insurance, despite the dampening effects on trade of a decidedly bleak economic outlook.
This is according to the latest business confidence survey conducted by Berne Union, which found that overall demand for export credit insurance remains strong, supported by the increased risk perception and uncertainty arising from the current geopolitical environment.
Analysts note that the global risk environment has remained acutely heightened throughout the first half of 2022, as lingering pandemic effects have been further exacerbated by the Russia/Ukraine war.
Additionally, disrupted supply chains, labour shortages and price inflation – especially in food and energy – have all piled pressure on businesses and governments alike.
Interest rate increases have also translated into higher borrowing costs, which, along with high prices potentially dampens both short term demand and longer-term investments.
“Despite this bleak outlook, or perhaps partly because of it, overall demand for export credit insurance remains strong,” Berne Union reported.
In particular, demand for short-term (ST) cover, substantially driven by commodities business, has been especially strong through the second quarter and this is expected to continue in 3Q 2022, albeit at a slightly lower level.
Demand for medium/long-term (MLT) cover has been more sporadic during 2022 so far – falling in the first quarter before picking up again in 2Q. Expectations for the third quarter are for a marginal continued increase, despite hesitancy around investment in new large projects, again, due to the overall high risk perception.
Looking ahead, Berne Union warns that payment delays directly caused by the War are materialising for some insurers and there is a general expectation that liquidity constraints and higher interest rates will lead to increasing insolvencies in the third quarter.
For ST business the expectation is a substantial increase in claims paid, while for MLT the material impact of payment delays will take longer to emerge unless more sovereign defaults start to materialise in late 2022.
