International Trade

Global Risk Rises

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...underwriters.

But this is no longer always the case. Indeed, in some instances the private insurers are providing extra underwriting capacity to complement the ECAs on particular deals or even reinsuring chunks of the official agencies’ risk portfolios. For example, in September 2006 Zurich agreed to reinsure $77-141m of Indonesian business for Atradius, in its capacity as The Netherlands ECA, so that the agency could cover more Dutch exports to this important but sometimes difficult Asian market.

Meanwhile, the private sector insurers also find themselves taking on a broader spread of business in technical terms.

In the days when much of the world was managed on centralised state-socialist lines, or maintained official exchange controls, the critical element of risk in a buyer country was frequently embodied by the state itself – through public sector banks and the government’s system for allocating foreign exchange (for which local buyers had to queue before sending payments to foreign suppliers).

But that has changed with the gradual advance of liberal economic ideas. These days, most governments no longer seek to control foreign currency supply: dollars or euros are usually available to local buyers, if at a market price.

On the other hand, amidst economic crisis or after a slide in the value of the national currency, the individual buyers may no longer be able to afford to service foreign payment obligations at a new exchange rate. Their failure to do so, as individual businesses, is technically classified as ‘trade credit’ rather than ‘political’ risk. So insurers frequently find that customers require cover that combines protection against both the full array of political factors and against normal commercial risks.

For the insurers, this represents extra business, but also a practical challenge in capacity terms. For growth is one thing. Managing it securely is another.

That... continued on page five >

 

 

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