QUESTIONNAIRE ABOUT YOU

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1 QUESTIONNAIRE ABOUT YOU For the rules on personal data protection on the EUROPA website, please see: Specific privacy statement: Received contributions, together with the identity of the contributor, will be published on the Internet, unless the contributor objects to publication of the personal data on the grounds that such publication would harm his or her legitimate interests. In this case the contribution may be published in anonymous form. Otherwise the contribution will not be published nor will, in principle, its content be taken into account. Please provide your contact details below. Name Fabrice Desnos Organisation Represented Euler Hermes UK plc Location (country) UK address: Please describe the main activities of your company/organization/association. Trade credit insurer (private company) SECTION A: GENERAL QUESTIONS A.1. Supply of trade financing and credit insurance8 a) by publicly supported insurers/export credit agencies (ECAs) in the shortterm (risk period of up to 2 years) Please provide information on State interventions in the market over the period (including the permanent schemes covering risks considered as non-marketable in the Communication), on the following elements: o Type of instruments used (e.g. insurance, reinsurance, guarantee, direct financing, factoring) and business volume per instrument; In response to the economic crisis, the UK Government and ECGD (the UK statefunded ECA) declined to take advantage of the Temporary Framework introduced in 2008, to allow ECGD to write marketable short-term credit insurance risks where lack of availability of cover in the private market could be demonstrated. However, in April 2009 the UK government did introduce a top-up scheme designed to introduce additional capacity into the commercial market. In summary, the Trade Credit Insurance Top-Up Scheme ( TCITS ) allowed UK companies, subjected after 1 st April 2009 to a credit limit reduction in respect of a specific buyer under their credit insurance policy, to purchase top up cover in relation to that buyer equal to the amount of the reduction, so that the limit remained unaffected for 6 months (subject to an overall maximum of 1m of additional cover). The UK government reinsured commercial credit insurers in respect of the additional cover provided, under a 100% quota share reinsurance treaty. The TCITS scheme expired on 31 st December o Geographical breakdown (volume of business covered according to the policy holder's country and to the buyer's country); The TCITS scheme was available to all UK-established companies.

2 o Pricing method and premium levels per instrument; Premium was set by the UK government at 2.3% of the value of additional cover granted. o Breakdown according to the eligibility conditions (e.g. size of the entitled enterprises, sectors, etc.); The TCITS scheme was available to all UK-established companies. o Potential role the private insurers may play in operation of the scheme, including in the selection of the beneficiary; Private insurers were responsible for publicising and administering the scheme, and for handling claims. They were paid an administration fee of 0.3% of the value of the top-up cover granted. o Size of State backed schemes (annual budget, annual take-up); Take-up of the scheme was very low, because (in our view) the premium level set by the UK government was in excess of normal market pricing levels, and the scheme was not implemented until most of the private market adjustment in response to the crisis had already occurred. Only 82 top-up policies were issued by Euler Hermes UK on behalf of the UK government, covering receivables with a total value of 13,815,865. Premium collected for the government was 195,652, and claims paid totalled 81,000. o To the extent that publicly supported insurers/export credit agencies (ECAs) are providing short-term insurance or reinsurance for 'marketable risks' (i.e. in competition with private export-credit (re)insurers), please provide information on how a separate administration and separate accounts for marketable risks and publicly supported activities is ensured; ECGD does not currently underwrite marketable risks (though see our comments in A3 below regarding recent attempts to increase the scope of cover written by ECGD). o Information on domestic trade financing and credit insurance (covering transactions within one Member State), including in particular volume, proportion in the overall business, terms and conditions. b) by publicly supported insurers/export credit agencies (ECAs) in the medium to longterm (risk period of more than 2 years) Not applicable. Please see information provided by ECGD. Please provide information on State interventions in the market over the period on the following elements:

3 o Type of instruments used (e.g. insurance, reinsurance, guarantee, direct financing, factoring) and business volume per instrument; o Geographical breakdown (volume of business covered according to the policy holder's country and to the buyer's country); o Pricing method and premium levels per instrument; o Breakdown according to the eligibility conditions (e.g. size of the entitled enterprises, sectors, etc.); o potential role the private insurers may play in operation of the scheme, including in the selection of the beneficiary; o size of State backed schemes (annual budget, annual take-up); o Information on domestic trade financing and credit insurance (covering transactions within one Member State), including in particular volume, proportion in the overall business, terms and conditions. c) by private insurers/credit providers Please provide information on the structure of the existing portfolio (distinguishing between the short-term and the medium to long-term business) of the private credit insurers and other credit providers over the period : o Type of instruments used (e.g. insurance, reinsurance, guarantee, direct financing, factoring) and business volume per instrument; Euler Hermes UK provides short-term credit and political risk insurance to UK and Irish exporters of goods and services (in addition to domestic supplies). The maximum permitted credit period is typically up to 180 days. Cover is provided against insolvency of or non-payment by the insured s buyer, and (in some cases) contract frustration and cancellation, export/import restriction and currency inconvertibility. In addition to direct exporters, EHUK also provides credit and political risk insurance to banks and other export finance entities in respect of factoring and similar finance arrangements. We believe that the above portfolio structure is typical of most of the main private providers of short-term credit insurance in the UK market. o Geographical breakdown (volume of business covered according to the policy holder's country and to the buyer's country); The table below shows the percentage premium breakdown from between domestic business written to UK clients, export business written to UK clients, and business written to non-uk clients, by the six largest UK credit insurance providers (Atradius, Coface, Euler Hermes, HCC International, QBE and Zurich), as recorded in data compiled by the Association of British Insurers ( ABI ): Share of Premium by Market Segment (%) Domestic 48% 48% 51% 55% 52% 48%

4 Export 37% 35% 33% 29% 25% 28% Non-UK 15% 16% 16% 16% 23% 24% o Pricing method and premium levels per instrument; Not available. o Breakdown according to the eligibility conditions (e.g. size of the entitled enterprises, sectors, etc.); The following table contains a breakdown of gross written premium by customer size measured by size of insured turnover, as recorded in the ABI data, from : Share of Premium by Customer Size by Insured Turnover (%) m-3m 11% 11% 11% 10% 9% 8% 3.1m-5m 6% 6% 7% 6% 5% 5% 5.1m-10m 10% 11% 10% 9% 9% 9% 10.1m-100m 37% 36% 36% 39% 39% 37% > 100m 35% 36% 36% 37% 38% 41% o Structure according to the credit period duration; As indicated above, the maximum permitted export credit period by EHUK (and, we believe, most other main private credit insurance providers) is typically 180 days. o Potential role of the State in the operation of the scheme, including in the selection of the beneficiary and the volume of business benefitting from any type of State backing (e.g. guarantees for long-term export credits); As indicated below, the state-supported ECA in the UK, ECGD, has traditionally written only long-term export credit risks in respect of capital goods, and has therefore not been routinely involved in the short-term market in competition with private insurers. o Overall volume of the short-term business and of the medium to long-term business; The table below contains the ABI data on numbers of policies, gross written premium and insured turnover written by the six largest UK credit insurers from We believe that most of this business will be short-term.

5 Volumes of Business Written by Principal UK Private Credit Insurers Number of 11,202 12,504 13,708 14,086 11,430 10,177 Policies Gross Written Premium m Insured Turnover m 222, , , , , ,384 o Information on domestic trade financing and credit insurance (covering transactions within one Member State), including in particular volume, proportion in the overall business, terms and conditions. Not available. A. 2. Impact of publicly supported schemes a) Legal framework governing publicly supported export credit agencies (ECAs) o Are publicly supported ECAs subject to the same regulation (e.g. regarding capital requirements, taxation, bankruptcy) as private insurers/credit providers? o If not, please explain any differences and their potential impact on the market and competition thereon. The UK Export Credit Agency, ECGD, is a government department that operates under an Act of Parliament. Unlike private insurers, it is not subject to regulation by the UK Financial Services Authority, nor is it required to maintain fixed capital levels in order to support its solvency (in effect it benefits from a solvency guarantee by the state). In addition, its operating costs are funded by the UK Treasury. ECGD therefore enjoys significantly reduced regulatory, reporting, capital maintenance and running costs as compared to private insurers. Accordingly, it has a clear (and unfair) competitive advantage over private insurers, simply by virtue of the support that it receives from the state. b) Operation of publicly supported export credit agencies (ECAs) Please provide factual information on any differences there might be between the activities of the public ECAs (in short, medium and long term, domestic and export segments) and the corresponding activities of potentially competing private insurers/credit providers, in particular: o Differences in pricing levels; o Differences in type of cover; o Difference regarding other conditions (minimum required / average retention level, prudence of risk assessment, service provided e.g. in respect of the length of the application and claim processing etc.) Until recently, ECGD s credit insurance activities have been confined almost exclusively to long-term marketable risks (involving manufacturing and credit periods in excess of 2 years) on capital and semi-capital goods, exported by UK companies to overseas buyers in non-eu and non-oecd countries, subject to a

6 minimum contract value of 20,000. See our response to section A3, however, on recent (in our view unwarranted) attempts by the UK government to widen the scope of short-term export cover provided by ECGD. Please explain how these differences may in your view affect the market and competition thereon, if appropriate by distinguishing between short and medium to long term as well as domestic and export segments. As outlined above, ECGD has traditionally written long-term export cover (with a manufacturing and credit period in excess of 2 years) on large transactions involving high-value capital and semi-capital goods (i.e. non-marketable risks); whereas private insurers have offered shorter term export policies covering conventional sales of less valuable goods and services (covering credit of up to around 180 days), usually by smaller companies. There has therefore been little overlap between the activities of ECGD and the private market. If, however, ECGD were allowed to compete directly with private credit insurers for marketable risks, the state support that it receives would put it at a clear, unfair competitive advantage as compared to private insurers, causing serious market distortion. A. 3. Market developments o Please provide factual information about the latest market trends both as regards the short- and medium to long term segments, and covering different forms of financing (insurance, guarantee, direct financing etc.). o What was the impact of the global economic crisis as regards the availability of private trade financing and credit insurance? Has the need and/or form of State intervention changed? Has the crisis affected on a lasting basis the scope of risks taken on by the market (i.e. the risks considered 'marketable')? o What are the forecasts for the years to come? Do these trends affect all types of trade financing and credit insurance equally? Do they affect all sectors equally? Please explain any differences. o Are there any specificities as regards domestic trade financing and credit insurance (covering transactions within one Member State), both in terms of latest market trends, the impact of the crisis and the forecasts for the years to come? During levels of short and medium-term cover written by all European trade credit insurers contracted significantly, as a result of the economic crisis. We believe that this contraction was primarily a reflection of the degraded risk environment, rather than an indication of a lack of overall market capacity for short-term business. In response, various government schemes were introduced to try to boost capacity (including the TCITS scheme in the UK as described above), and the escape clause from the 1997 Communication was effected by the European Commission to allow ECAs to provide additional cover. As shown above, in the UK the TCITS scheme was not widely taken up (mainly, we believe, due to pricing and timing issues), and ECGD did not apply to the European Commission for permission to implement the escape clause. The burden of

7 providing short-term credit insurance capacity through the crisis therefore largely remained with the private market. Throughout the crisis, private credit insurers continued to write the maximum amount of short-term cover consistent with the high levels of uncertainty caused by the large amounts of risk suddenly offloaded by the banks, and continued to pay significant amounts in claims. However, private insurers were obliged to increase their premium levels in response to the significantly increased risks they were adopting, which made their product unviable for many clients operating at relatively low profit margins. This inevitably led to an increase in self-insurance, and a contraction of the insured market. By late 2009, the amount of short-term cover available from the private market had virtually returned to pre-crisis levels, and the UK Government (in joint evidence from ECGD and the Department of Business Investment and Skills ( BIS ) to a Parliamentary Select Committee), felt sufficiently comfortable to comment as follows: The trade credit insurers have advised the Government that they are now in a position to reinstate some of the buyer limits that they had withdrawn and they expect to be able to support increased levels of cover next year...the Government is therefore not minded to provide an intervention to support short-term export trade credit insurance, either directly to exporters or indirectly through private trade credit insurers by way of reinsurance. Since late 2009, levels of short-term cover available in the private market have further increased, to the extent that supply is now starting to exceed demand, and private insurers face a soft market in terms of pricing. Unless a second global recession results from the current turbulence in the financial markets, we believe that this soft market is likely to continue for the foreseeable future. Against this background, we were surprised by the announcement made by BIS and ECGD in January 2011, that ECGD is to be permitted to relax the eligibility criteria of its short-term Export Insurance Policy to target SMEs in respect of single transactions involving non-capital goods. We are unaware of the exact take-up levels of this product, but believe them to be low. If pursued or expanded, however, this development will in our view allow ECGD, with its in-built structural competitive advantages outlined above, to compete unfairly with private insurers, in circumstances where there is already an excess of cover in the short-term market. We firmly believe that state intervention in the short-term credit insurance market (whether through ECAs or otherwise) is not currently warranted, and is unlikely to become necessary in the foreseeable future. 6 A. 4. Rationale of public intervention o Under which circumstances would you consider there would be a potential need for public intervention in the area of short-term and/or medium to long-term trade financing and credit insurance? In other words, are there specific situations (e.g. type of instrument, duration, sector etc.) where the market is not able to provide trade financing or export insurance? Please explain what these situations would be.

8 We believe that state support should be limited to long-term export transactions involving capital goods, of the type currently underwritten by ECGD in the UK. We do not believe that there is any foreseeable need for state intervention in the shortterm credit insurance market, where private insurers are able to provide more than sufficient capacity for present and future needs. Allowing ECAs to operate in the short-term market creates distortions of that market through unfair competition due to the inherent advantages that they enjoy, and for this reason should be resisted. As stated above, even in the depths of the last recession private credit insurers continued to write short-term cover consistent with the prevailing levels of risk, and to pay out large amounts in claims. Where private credit insurers were unable to write cover, the credit risk involved in the transaction was unacceptably high, and withdrawal of cover acted as a precautionary warning to our clients. Government attempts to intervene in the market were a failure the TCITS scheme was overpriced and therefore not taken up, because (in our view) government acted too late, and was unable to write risk at a realistic price where commercial insurers had already judged that risk unacceptable; and the escape clause option was not actioned by ECGD. We therefore believe that, even if a second deep economic recession were to occur now, direct government intervention in the short-term credit insurance market would be unproductive, and potentially damaging. o In your view, in terms of need for public intervention, are there any fundamental differences to be considered between short and medium to long term and between export and domestic trade financing and credit insurance? Please explain. As stated above, we believe that state intervention can be justified only in respect of long-term capital goods export risks typically underwritten by ECAs, where cover is not available in the private credit insurance market due to the nature of the risks involved. We do not believe that it is justifiable in respect of short-term export credit risks, for all of the reasons given above. SECTION B: THE COMMUNICATION B.1. Scope The current Communication only covers one instrument, i.e. short-term export credit insurance. o Do you see a need to broaden it to include other types of State interventions? Please specify for what instruments and why. o Do you see a need to broaden it to include medium to long-term financing? Please explain why. We do not believe that the Communication requires to be extended to cover other types of instrument. We think that it is fit for purpose as originally drafted. B.2. 'Marketable' and 'non-marketable' risks The current Communication is built on the distinction between 'marketable' and 'nonmarketable' risks. 'Marketable risks' are risks associated with short term export credit buyers in the EU and certain OECD countries. In these cases, Member States shall in principle not intervene. All other countries are considered to be non-

9 marketable and state intervention to provide insurance cover for risks related to them does not require notification to and approval by the Commission. o Do you consider the definition of the marketable countries/risks appropriate? Please explain why/why not. We believe that the current definition of marketable short-term credit risks (EU or OECD countries) is not sufficiently refined, and is too static to reflect changing circumstances. The definition should be amended so that each individual country is designated as marketable or non-marketable, in the light of changing availability of cover in the private market (for example some of the emerging economies could be regarded as equally marketable as the OECD countries). Only those countries where cover can be shown to be unavailable in the private market at the particular time should be designated as non-marketable, and that designation should be subject to regular review. The system should be centrally co-ordinated by a dedicated expert body, so that its decisions on marketability apply equally to all ECAs in all EU states at the same time. That body should include representatives of both the State ECAs and private insurers, and its decisions should be transparent and evidence-based (see further below). o Does the scope of marketable risks differ for different types of instruments or policy holders (in particular in terms of duration, countries, sectors, type of companies)? See above. o Please explain what, in your view, are the decisive elements to qualify a risk as marketable or non-marketable. See above. B.3 The escape clause Under the Communication, an escape clause allows under certain conditions State intervention where the 'marketable' risks become 'temporarily non-marketable' owing to the unavailability of private insurance or reinsurance capacity (point 4.4). The Temporary Framework introduced a temporary procedural simplification regarding the demonstration of the unavailability of cover for short-term export-credit. o Do you consider that the condition for demonstrating the unavailability of cover under point 4.4 of the Communication (evidence from two large, wellknown international private export credit insurers as well as a national credit insurer) is appropriate? Please explain why/why not. We believe that the criteria for unavailability of cover were appropriate, but the need for the Temporary Framework has now disappeared (see below). o Do you consider that the procedural simplification of the Temporary Framework for demonstrating the unavailability of cover may also be justified after the crisis period for which the Temporary Framework was adopted? Please explain why/why not.

10 As stated above, levels of short-term export cover available in the private market have recovered to pre-crisis levels, and the current concern is one of potential overcapacity. We therefore believe that there is no justification for continuing the Temporary Framework, and it should be allowed to expire at the end of o Please also explain what would in your view be the most appropriate evidence to demonstrate that a risk is temporarily non-marketable (please explain both in relation to the source of the evidence and in terms of type of information, e.g. statistical data, market report, letters, etc). We believe that a clear and demonstrable lack of availability of private export cover should be the principal indicator of any non-marketability, based on transparent and objective metrics rather than the current requirement for individual proof of refusals from the private market. Such indicators could include, for example, market-wide acceptance rates for the country concerned, combined with macroeconomic data and forecasts. As suggested above, these could be assessed and reported by an expert committee, including representatives of the private insurers and state ECAs. o Do you consider that the condition for using the escape clause under point 4.4 of the Communication regarding the alignment of premium rates with the rates charged elsewhere by private export credit insurers for the type of risk in question, is appropriate in order to allow State interventions that correct market failures while at the same time minimising distortions of competition? Which other conditions might be appropriate? Please substantiate your view. If a risk is non-marketable then there is by definition no market premium rate with which premium charged by an ECA can be compared. It is thus difficult to understand the meaning of the requirement. In our view State intervention in the private market inevitably creates distortion due to the unfair competitive advantages enjoyed by ECAs. Such intervention should therefore be strictly limited to situations where cover is wholly unavailable in the private market (the original intention of the 1997 Communication). ECAs must not be allowed to become a source of cheap, state-subsidised export cover in unfair competition with private market insurers. o Is a similar escape clause in your view also appropriate for other instruments of trade financing or credit insurance? Please explain why/why not. And if so, what would in your view be the most appropriate evidence to demonstrate that a risk is temporarily non-marketable? We do not believe that the escape clause regime should be extended to other forms of risk. For the reasons stated above, in our view exceptions to the 1997 Communication should be strictly limited and based on firm evidence of unavailability of commercial cover, in order to avoid unfair competition and market distortion. o Do you consider that the intervention of the State under the escape clause leads to distortions of competition at the level of the companies obtaining insurance? Please explain why and how any such distortion could be minimised.

11 Yes, as stated we believe that State intervention will inevitably cause market distortion through unfair competition by ECAs, unless it is strictly limited to situations where cover in the commercial market is clearly and demonstrably unavailable. o Point 2.5 of the Communication provides a specific escape clause for SME with limited export turnover (i.e. annual turnover not exceeding EUR 2 million). Do you consider that specific conditions for demonstrating the unavailability of cover for risks incurred by SMEs, with or without a limit on export turnover, are needed? Please explain why/why not. As stated, we believe that the justification for any type of escape clause from the 1997 Communication has now disappeared, whatever the size of the business concerned.ns FOR THE FUTURE OF THE SHORT-TEANCE COMMUNICATION/ OTHER ISSUES o Do you have any other comments on the application of the Communication or proposals for its modification on issues other than the ones covered in the previous questions? o Based on your replies above, do you consider that the Communication should (a) be maintained, (b) modified or (c) allowed to expire in December 2012? Please substantiate your answer. We believe that the Communication should be renewed beyond December 2012, and strengthened as regards proof and assessment of marketability in the manner that we have described. The conditions that led to the introduction of the Communication have not reduced or gone away since 1997: The purpose of the 1997 communication is to remove distortions of competition due to state aid in the sector of export credit insurance, where there is competition between public or publicly supported export credit insurers and private export credit insurers (Commission Communication 2001/C217/02). Market distortion through unfair competition will inevitably occur if ECAs are allowed to compete with private insurers in the commercial marketplace. This is as true in 2011 as it was in ECAs have clear structural advantages over private insurers due to their status as government entities, and would be in a position to undercut private insurers on price and conditions of cover, if permitted to compete for the same risks. We therefore believe that the case for renewal of the Communication is overwhelming. In addition, we believe that the Communication should be strengthened in the ways outlined above, so that a clear and transparent EU-wide system is created that will ensure that ECAs are only permitted to write risks where cover is clearly and demonstrably unavailable in the private market. o Please provide copies of any documents or studies which may be relevant for this review.

12 Please indicate whether the Commission services may contact you for further details on the information submitted, if required. yes THANK YOU FOR RESPONDING TO THIS QUESTIONNAIRE.