With the second year of the recession upon us, there are a growing number of administrations looking seriously at introducing programmes to help stimulate trade flows and drive economic recovery. While these programmes come in various guises, they all have a similar goal, supporting trade and avoiding further damage to what are already delicate economies.

As of September 2009, more than a dozen countries had officially implemented government backed credit insurance programmes providing varying levels of support to businesses and about ½ dozen more countries were looking into introducing similar programmes.

Recognising their expertise, in most countries, government bodies have worked with private credit insurers to develop these plans. The plans are constructed to provide credit insured companies and their buyers with the greatest benefits. Private credit insurers generally act as the vehicle through which their eligible customers receive support but generally do not gain any significant financial benefits through the programmes. The insurance contract delivering both private and government backed credit insurance cover sits with the private credit insurer. The government relies on the private credit insurer’s underwriting expertise in determining its level of assistance. In consideration for their services, credit insurers are compensated by government bodies. Through the combined cover of private and government backed credit insurance, insured companies are often able to maintain larger trade flows and hopefully better cash flow.

The programmes have generally taken the shape of top up or ground up reinsurance programmes. Under the most commonly used, top up plans, which are being utilised in countries like the UK, France and the Netherlands, the government provides additional cover to insured companies on buyers covered by the private credit insurer, enabling more trade with that buyer. In addition to the top up plan in France, a ground up plan has been introduced which provides cover to insured companies on buyers not covered by the private credit insurer. Denmark is also using a ground up plan. Both of these types of plans are available to credit insured companies.

However, these are not the only types of plans. The Spanish programme, for instance, focuses more on supporting businesses by providing credit insurers with additional financing through a stop loss reinsurance programme. The programme is, amongst others, meant to encourage private credit insurers to continue writing limits on buyers by limiting the potential of the credit insurer incurring unsustainable losses. The most notable differences from the other plans are that it requires no action on the part of the insured company and that the government expects to share in the profits of the private credit insurer when the operating environment improves.

Companies need to look closely at these programmes to determine if and how they can benefit from them. Company size and buyer location often play an important role in whether a business can participate in the programme at all. Your credit insurer is normally a good place to start as, thus far, the credit insurance industry has an important role to play in their implementation, use and success.

For further information tel: +31 20 553 2003; email: john.blackwell@atradius.com; www.atradius.com