OECD export credit rule changes could have long-term consequences for insurers

(InsuranceDay, London, 4 July 2022) On November 5 2021, the OECD announced the minimum down payment requirement for the Arrangement would be cut from 15% to 5% for sovereign borrowers in developing markets.The change, which was implemented temporaryily for 12 months, stoked private market concerns that the impact on insurers could be longer term. Under the previous arrangement, official ECAs could only participate on the buyer credit portion of a given transaction, with a stipulation that the down payment portion (typically 15% of the value of the contract) should be provided by the private market. Normally, commercial banks that supply the loans for the down payment often then turn to the credit and political risk insurance market to cover the risk of default. The OECD has said this change is in response to a “clear market failure” caused by the ongoing Covid-19 crisis. In its view, the private sector was “very reluctant or even unwilling” to provide insurance cover for OECD Category II (low- and middle-income) countries, which in turn meant banks were unwilling to finance projects in these developing countries.