In view of the current developments in Ukraine and the unforeseeable consequences, the private credit insurers are not providing any new or additional cover on Russian and Ukrainian buyers for the time being.
In view of the dramatic developments in Ukraine, many companies are asking themselves how (and if at all) their trade receivables are secured in the event of a default in connection with an economic or political risk.
Frankly speaking, there is no simple yes or no to the different questions: the wording of the insurance contract and the corresponding General Conditions of Insurance must be examined in detail.
Risk-adjusted Credit Management
In view of the current developments in Ukraine and the unforeseeable consequences, the private credit insurers are not providing any new or additional cover on Russian and Ukrainian buyers for the time being. The private credit insurers are currently in talks with the credit-insured companies in order to understand and assess their risk situation and position in Russia and Ukraine.
The current development is extremely dynamic and restrictions must be expected on an ongoing basis. In near future, risk-adjusted measures can therefore be expected from the credit insurance market, such as starting with the reduction of the cover to the amounts currently outstanding.
In principle, the credit insurance contracts or their underlying General Conditions of Insurance contain so-called sanction clauses, which exclude any cover and other obligations on the part of the insurer if this violates applicable sanction provisions of the United Nations and/or the European Union and/or other national economic or trade sanctions or regulations to be observed get violated. Due to the complexity of sanctions clauses and their consequences as well as the currently tougher sanctions course (possible exclusion of Russian financial institutions from the international payment system SWIFT), we recommend monitoring the status of the sanctions measures particularly closely. For further information on sanctions, you may also contact your Chamber of Commerce.
At this point we would also like to mention the due diligence of a prudent businessman: You must manage all business which is covered under the trade credit contract with at least the same diligence and prudence as you would reasonably be expected to exercise were it not insured.
Scope of Cover – Trade Credit Insurance
In credit insurance contracts, the scope of coverage is usually individually designed. Hence, the wording of the respective insurance contract and the corresponding General Conditions of Insurance must be considered in detail.
Commercial Risk – Protracted Default
The commercial risk can be described as the deterioration of the creditworthiness of a private buyer, resulting in a payment default by or the insolvency of the buyer, not caused by political circumstances or occurrences.
The Protracted Default (=payment default) as an insured event usually occurs when a buyer cannot meet his obligation to pay the contractual debt within the agreed waiting period. However, under the given circumstances, the payment default is to be seen in the context of the wording of the contract and the General Conditions of Insurance.
For instance, if a foreign buyer (from the perspective of the Insured) wants to fulfill its contractual obligation and has deposited the equivalent value of the insured receivable at a bank but the deposited amount is not converted into the agreed currency or is not transferred due to authority or governmental orders, this event would not fall into the coverage of the commercial risk.
If the coverage of the political risk (basically only for defaults outside the policyholder`s country) is agreed in an insurance contract, the underlying wording must also be checked whether it is included in the coverage or has already been explicitly excluded by the insurer (= exclusion of political risk coverage for Russia, Ukraine…) and furthermore whether the political risk is not excluded by General Disclaimer.
The CC Credit Team will be happy to answer any specific questions you may have about your trade credit insurance contract. Please contact us directly.
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Group Practice Leader Credit & Political Risk
T +43 5 04 04 280