Volatility in Egypt and Syria is prompting trade credit insurers to limit cover as they seek to avoid multimillion-dollar payouts linked to elsewhere in the region.
It follows more than US$100 million of claims paid last year related to Iran and about $140m the year before in Libya, according to the Berne Union, an association representing global credit and investment insurers.
“We have some concerns for the future. Parts of the [Middle East and North Africa] region are politically volatile and we are concerned about the potential spillover of that to the now healthy parts of the Mena region,” said Robert Nijhout, the executive director of International Credit Insurance & Surety Association, another body that represents insurers around the world.
Alongside Mena, southern Europe and parts of Africa and South America were also potentially risky areas, he said. Still, the outlook for growth in the region was positive, he added.
Offered by special insurers, banks and government-backed export credit agencies, trade credit insurance covers sellers of goods and services against the risk of non-payment by customers both at home and abroad. Demand for the insurance in the region is taking off as companies seek to improve their ability to cover risks.
Such risks flared in the region in 2011 when a revolution and foreign military action in Libya prompted a clutch of big claims by oil majors and other foreign companies who had been left unpaid.
International sanctions against Iran prompted more payouts last year as Iranian buyers struggled to pay foreign sellers of goods amid a slump in the value of the currency.
“We are in a situation today where the Iranian buyers say ‘we would like to pay but no one is accepting our payment’ so the credit insurers then have to indemnify and they are then trying to recover the money from the Iranian buyers,” said Fabrice Morel, the deputy secretary general of the Berne Union.
As yet, no big claims had been paid out linked to Egypt as insurers reduced their exposure, he said. But volatility had intensified since the removal of Mohammed Morsi as president in a July uprising .
“It is an explosive situation and it might well be that we see claims coming from this country in the future,” said Mr Morel.
Euler Hermes, the largest trade credit insurer in the world, experienced a 20 per cent rise in claims in the region last year, said Mahan Bolourchi, the head of risk, information and claims in the GCC and Middle East for the company. The increase in claims was still below the firm’s annual regional revenue growth of 55 per cent.
Along with other international insurers such as Coface and American International Group, it has strengthened its presence in the region to tap into surging flows of trade, particularly in the UAE, a major transshipment hub.
Euler Hermes is limiting new exposure in Egypt and Libya and not providing any cover currently in Syria or Iran.
“In Egypt, the risk is that no one will be held accountable for the dues,” said Ludovic Subran, the Euler Hermes chief economist. “In terms of the private sector buyer, the risk is a little different. The risk is that there’s very little cash left in the country.”
Euler Hermes has been encouraging GCC countries to explore new export markets in some parts of the Mediterranean such as Morocco and Tunisia.