A number of measures were introduced at the EU-level during the early stages of the pandemic in Spring 2020. This included the introduction of a temporary framework which altered state aid rules enabling member states to intervene in economies to limit significant economic damage due to lockdowns. At the same time, the EU took a number of related decisions, including the introduction of a temporary decision to remove all countries from the “marketable risks” definition.
The European Commission announced in December that this decision would finally end on 31 March 2022, after two years of being in place. We look at the context for the use of this decision, its interaction with other measures during the pandemic, and next steps for the market.
Under the EU’s temporary framework, a number of member states introduced state-backed reinsurance arrangements to enable private credit insurance markets to maintain cover at a time of great uncertainty and deteriorating risk of insolvencies in the real economy. Alongside these measures, the EU also temporarily removed all countries from the list of marketable risks countries within its communication on Short Term Export Credit (STEC) insurance. This allowed public insurers to access risks otherwise considered off-limits due to the likelihood of unfair competition between public and private players.
As it soon became apparent, the weight of wider state support was having a positive effect, keeping businesses and significantly reducing the likelihood of insolvencies. This in turn reduced the volume of claims in credit insurance markets that would otherwise have been protected under state reinsurance arrangements, reducing the potential benefit of those schemes over time. However, a further positive effect was that the improved economic picture alongside greater clarity on the scale and impact of government interventions meant that by the end of 2020, appetite and capacity within credit insurance markets had returned to pre-pandemic levels. To ensure that private markets could resume normal functioning, most member states looked to end their reinsurance schemes by the end of Summer 2021; however, the decision on marketable risks was extended again in January 2021 until the end of December last year.
ICISA responded to a further request for information about the availability of cover for STEC risks from DG COMP in Autumn 2021, where we noted that the consensus from discussions with our membership showed sufficient capacity and appetite in markets, as well as a strong desire to return to normal functioning. Following that consultation period, and based on the feedback it had received, the Commission announced that it end the use of the temporary decision following a brief phasing out period, ultimately ending on 31 March 2022. In its statement announcing the decision, DG COMP noted: “Following strong feedback from the private sector towards a return to normalcy of the market, in this amended version of the Temporary Framework, the Commission found that there would be no need for a long-term prolongation of the temporary removal. Therefore, the amended Temporary Framework envisages a prolongation of 3 months (from 31 December 2021 to 31 March 2022), in order to allow for sufficient phase out time”. It is understood that given the current position in credit insurance markets, as well as no evidence for widespread shortages of capacity or appetite, that the decision will not be prolonged further beyond this date.
At the same time as noting the end of the application of the temporary decision, the Commission also reported on a number of adjustments which it has introduced to the communication on STEC. Notable within the adjustments is the broadening of criteria under which public insurers may write STEC business, increasing the threshold for annual export turnover for insureds from EUR 2mn to EUR 2.5mn. While this amendment may not have significant impacts in some EU markets, in others where there are mature credit insurance markets with insureds of this size well serviced by private markets, this decision may impact private players. ICISA believes that the SME-segment is well served by the private market and encourages the Commission to monitor for any negative impacts on private markets which may arise from this decision.