Loss shocks and the quantity and price of private export credit insurance: Evidence from a global insurer

Private trade credit insurance - covering the risk of non-payment - plays an important role in facilitating domestic and international trade, especially within Europe. Due to lack of data, however, very little is known about the influence of shocks on the market for private trade credit insurance. This paper studies the influence of claims on the availability and price of export credit insurance, using unique bilateral country- level data covering worldwide insurance underwriting by a global trade credit insurer from 1992 to 2006. Country-pair  and time-varying country fixed effects allow me to control for bilateral  heterogeneity and country-specific insurance supply-and-demand  shocks in both exporting and destination countries. In doing so, I find that a doubling of claims results, on average, in a decline in the share of bilateral exports insured by about 11% and rise in premium level by about 4%. These claims effects increase when the insurer makes a loss and further rise with the size of the loss. I also find evidence indicating that the global trade credit insurer transmits extreme losses across countries by reducing its supply of export credit insurance. Overall, these results help our understanding of potential trade finance constraints in times of crisis, such as during the 2008-09 global trade collapse.
 
Keywords: trade credit insurance, export credit insurance, claims, international trade.
JEL classifications:  F14, G01, G22.

Working paper no. 462