DBRS Morningstar Releases Commentary: “COVID 19: European Governments Have Moved Swiftly To Protect Availability Of Trade Credit Insurance”

DBRS Limited (DBRS Morningstar) released a commentary entitled “COVID 19: European Governments Have Moved Swiftly To Protect Availability Of Trade Credit Insurance” that discusses the economic impact of the Coronavirus Disease (COVID-19), which continues to be felt across the globe, including the severe disruption of global supply chains. Various countries in Europe have taken steps to protect business activity in their jurisdictions by initiating trade credit insurance guarantee schemes targeted at protecting business-to-business trade. The government of the United Kingdom also followed this trend by announcing on June 4, 2020, that businesses with supply chains that depend on trade credit insurance and businesses experiencing difficulties maintaining trade credit insurance cover due to the pandemic will be supported by a temporary (nine months) government scheme up to GBP 10 billion.

The key highlights include:
(1) European countries have taken steps to protect business activity in their jurisdictions by initiating government-backed schemes targeted at protecting business-to-business trade by ensuring the continued availability of trade credit insurance;
(2) Businesses need trade credit insurance because the extension of trade credit exposes the provider to default risk. This is the risk of default on the debt as a result of the borrower failing to make required payments within the period allowed by the trade credit agreement; and
(3) The private trade credit insurance market is dominated by three insurance groups (which collectively account for over 80% of the global credit insurance market as of 2018).

“DBRS Morningstar anticipates that the actions taken by various governments will ensure the continued availability of trade credit insurance, while providing support for business-to-business transactions by mitigating the risk of credit default on goods and services,” said Victor Adesanya, Vice President, Global Financial Institutions Group at DBRS Morningstar. “Businesses will have the confidence to continue trading, knowing that they are protected, which is particularly important for small and medium size enterprises.”

Notes:
The commentary is available at www.dbrsmorningstar.com.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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