The alliance enables credit insurers to keep offering their clients cover for credit lines in the amount of EUR 400 billion. A guarantee provided by the federal government allows the insurers to take on more risk than would be allowed under normal underwriting circumstances. This way, the emergency alliance stabilises supply chains, prevents chain reactions and bolsters confidence in the economy’s stability.
Insurers cover supplier credit to the tune of EUR 400 billion
As part of the emergency arrangement, the federal government will guarantee EUR 30 billion worth of compensation payments by credit insurers from March to the end of 2020. In return, credit insurers commit to maintain their current level of coverage for roughly EUR 400 billion worth of credit lines. On top of that, credit insurers cover losses up to EUR 500 million themselves, bear the default risks in excess of the government guarantees and transfer two thirds of total premiums for 2020 to the government. In 2019, premium income amounted to EUR 817 million.
The arrangement between the federal government and credit insurers applies retroactively for compensation payments from March 2020 and expires at the end of the year. To implement this arrangement, credit insurers have yet to enter into bilateral agreements with the federal government.
The shared goal of the federal government and credit insurers is to stabilise their clients’ supplier relations with companies that were economically healthy before the corona pandemic and are experiencing difficulties because of the fallout from the pandemic. The federal guarantee isn’t a licence to enter into risky transactions with buyers whose economic stability had already been questionable before the corona pandemic. The insurers keep monitoring and assessing the creditworthiness of buyers, thereby assuming a critical risk assessment function for their clients. In cases of particularly poor credit development, credit limits can still be reduced.
Commercial credit (del credere) insurance protects suppliers from the risk of a domestic or international buyer not being able or willing to pay a bill. In the event of debt default or longer-term payment delays, credit insurers will foot the bill. The GDV estimates that credit limits covered by insurers account for about 15 percent of German exports, thereby contributing significantly to the security of Germany’s export sector.