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Trade credit insurers pull back from Russia, Ukraine after invasion

Trade credit

(Reuters) - Trade credit insurers that provide a financial safety net for exports and imports are pulling back from covering businesses exporting to Ukraine and Russia following Moscow's invasion, given the risks of sanctions, high claims or missed payments, industry sources say.

The move will heap more pressure on Russia's teetering economy, already battered by a welter of Western sanctions and shunned by increasing numbers of companies.

"In this last week, trade credit insurers will have paused supporting new risk for Ukraine and Russia," said Nick Robson, global leader for credit specialties at insurance broker Marsh LLC.

Companies buy trade credit insurance if they supply goods or services to other businesses on credit, to protect against the risk they will not get paid, or will be paid late.

The global trade credit insurance market underwrites nearly $3 trillion in trade receivables, according to the International Credit Insurance & Surety Association.

Government-backed export credit agencies also provide insurance, in addition to private trade credit insurers.

Major private sector European trade credit insurers include Euler Hermes, owned by insurer Allianz SE, Atradius NV and Coface SA.

Mr. Robson said lack of availability of trade credit insurance will impact exporters of food, textiles and electronics to Ukraine and Russia, as well as those providing products to the Ukrainian agriculture or Russian energy sectors.

Unlike most insurance policies, which are valid for a year or more, trade credit insurers often have more leeway in declining to underwrite new business under a specific policy at short notice.

Insurers will hold back on new business to check they are not doing business with sanctioned entities, industry sources said.

The physical and economic impact of the war will increase the likelihood that businesses in Ukraine buying goods from the West will default on payments, raising risks for trade credit insurers.

In addition, restrictions on payments between Europe and Russia are making insurers nervous as to whether exports to Russia will be paid for.

Trade credit insurers may also be taking an ethical stance on Russia, said Bernie de Haldevang, head of credit, political risk and crisis management at insurer Canopius Group Ltd.

“Is it a pure risk factor, do insurers still want to be taking on risk in Russia and Ukraine? Or is it a policy decision and is there an ESG (environmental, social, governance) factor to it? Should insurers continue to support Putin's war chest?"

Euler Hermes said: "Given the current context and the strong uncertainty about what will happen next, we are adjusting our underwriting strategy to the gravity and the emergency of the situation."

Atradius said that it was important to "stay in close contact with our customers to ensure good communication about actions that relate to their business and exposure in the region and that we do our best to help them manage them."

Coface declined to comment.

When it comes to trade credit insurers' outstanding business in Ukraine and Russia, they will face large claims in the coming weeks if exporters do not get paid.

They are also watching to see if the war escalates.

Trade credit insurance, like many other types of commercial insurance, typically carries a war exclusion.

Under this war exclusion clause, policyholders cannot claim for war-related losses if there is a conflict between two of these five major powers - United States, Britain, France, China or Russia.