Trade Credit Reinsurance Scheme

Published date17 March 2021
Subject MatterInsurance, Insurance Laws and Products, Reinsurance
Law FirmCleaver Fulton Rankin
AuthorMr Peter Moorhead

What is the Trade Credit Reinsurance Scheme?

The Trade Credit Reinsurance Scheme, led by the Department for Business, Energy and Industrial Strategy, will temporarily reinsure the credit risks of business-to-business transactions covered by Trade Credit Insurance in the UK. The government has committed to provide a guarantees of up to '10 billion to the Scheme.

The Trade Credit Reinsurance Scheme launched on 4 June 2020 is to be available on a temporary basis for nine months backdated to 1 April 2020 and running to 31 December 2020, with the potential for extension if required.

Why is the Scheme required?

Trade credit insurance underwrites an estimated '350 billion of economic activity of more than 630,000 businesses in the UK each year and protects companies from the risk that their customers become insolvent before paying for goods or services. It is a vital cog in the economy, allowing businesses to trade with each other with confidence.

Without government support insurers may increase insurance premiums significantly or may withdraw cover completely. This would cause serious issues for the liquidity and working capital of many business and severely impact on the wider business supply chains.

Key Features

  • The scheme will be delivered through a temporary reinsurance agreement that is open to all insurers currently operating in the UK market, covering both domestic and overseas trade with payment terms of up to 2 years.
  • The Government will reinsure 90% of insurance claims up to a cap of '3bn and 100% of claims between '3bn and '10bn.
  • The Government will receive 90% of gross policy premiums and return 35% of these premiums to insurers to cover their costs.
  • The rules of the Scheme will require participating insurers to comply with certain undertakings regarding the conduct of their business during the period of the scheme; they will not be allowed to make profits on businesses that uses the guarantee...

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