Finnvera’s credit insurance used more than in the previous year – credit insurance safeguards exports and improves the exporter’s competitiveness
This year, Finnvera has granted 213 credit insurance arrangements for export transactions, amounting to EUR 67 million. In terms of the number of arrangements, the year-on-year increase was 57 per cent. Due to the coronavirus crisis, Finnvera has received special permission from the European Commission to grant credit insurance for exports to the EU countries, Japan and the United States, for instance. Half of credit insurance arrangements granted are associated with these countries. The special permission is valid until the end of June 2021. In the uncertainty caused by the coronavirus crisis, financing and risk management are more significant than ever. It is positive that especially SMEs have now found credit insurance.
In January–October, the number of credit insurance arrangements granted to SMEs was 169 while it was 75 in the corresponding period last year. This year, SMEs have become the main user group of credit insurance arrangements, or Export Receivables Guarantees, Receivables Purchase Guarantees and Credit Risk Guarantees.
Credit insurance enables an export company to protect itself against credit losses and, on the other hand, to offer a longer term of payment to the buyer, which improves the company’s chances of winning deals. Credit insurance is suitable for continuous transactions with short terms of payment.
SMEs have not used credit insurance very much since they are either unaware of the product or might not consider it necessary. For this reason, it is positive that SMEs’ willingness to take out insurance for their export transactions and their awareness of the importance of protection against export-related risks seem to have increased.
“The crisis caused by the coronavirus pandemic has obscured the outlook in the world economy and increased trade-related credit risks. It can also be seen that buyers are currently trying to negotiate longer terms of payment. Financing and risk management are more significant than ever. Especially now we recommend that export receivables are protected with credit insurance, for instance. Finnvera can provide enterprises with tools for protection against risks, allowing them to focus on exports. In practice, insuring a EUR 100,000 export transaction will cost a few thousand euro, including the opening fee, and Finnvera will grant a 90 per cent guarantee for the transaction,” says Tuukka Andersén, Vice President, Head of Underwriting at Finnvera.
The European Commission’s special permission extended until the end of June 2021
Due to the coronavirus crisis, the European Commission increased Member States’ possibilities to grant export credit guarantees for their companies and thus temporarily mitigate the effects of the crisis in the field of credit insurance. The special permission is valid until the end of June 2021 and Finnvera’s export credit guarantees granted under it may be valid at the maximum until 27 December 2021.
This package of measures allows Finnvera to grant export credit guarantees with a short risk period for exports also to EU countries and Western industrial countries, provided that exports have sufficient Finnish content. Normally, this would not be possible. Finnvera still always recommends turning primarily to a private credit insurer for insurance.
The coronavirus crisis has reduced exports, demand for credit insurance lower than during the financial crisis
However, in terms of the number of arrangements, demand for Finnvera’s credit insurance has been lower this year than in 2009, during the financial crisis, when there was a comparable special permission from the European Commission to safeguard exports. In 2009, the number of credit insurance arrangements granted was more than 450, amounting to approximately EUR 85 million.
“It seems that the coronavirus crisis has affected exports more, decreasing their volume from last year. In January–October 2020, exports covered by credit insurance products was EUR 195 million while one year earlier it was nearly EUR 220 million,” says Andersén.
Credit insurance granted for exports to nearly all EU countries
Since April, credit insurance has been granted to a wide range of sectors and for exports to nearly all EU countries, such as Sweden, Germany and the Baltic countries as well as to the United Kingdom and, outside Europe, to Australia, Japan, Canada and the United States. Under normal circumstances, granting credit insurance for exports to these countries is not possible for Finnvera; instead, insurance is provided by commercial credit insurers.
Furthermore, this year Finnvera has granted credit insurance for exports to countries for which it can also normally grant credit insurance, such as Russia, Brazil, India, Chile, Mexico and South Korea. Finnvera’s traditional large-volume credit insurance countries are Russia and Turkey.
Tuukka Andersén, Vice President, Head of Underwriting, Finnvera, tel. +358 29 460 2688