Germany to subsidise firms' credit insurance -body

FRANKFURT Dec 14 (Reuters) - The German government will subsidise commercial risk insurance to help companies keep the flow of industrial goods moving, the country's insurance industry body said on Monday.

The state has reached a deal with credit insurers in which Germany will make 7.5 billion euros ($11 billion) in guarantees available through the end of 2010 for additional insurance cover when credit insurers are unwilling or unable to take on the risk, GDV said.

The agreement comes months after industry groups said the insurers had left them in the lurch during the crisis by slashing the availability of cover for non-payment of goods and other commercial contracts, a charge the insurers have denied.

"We hope that the programme will prove its worth and we will help the government set it up," said Peter Ingenlath, the chairman of GDV's credit insurance committee.

Under the programme, Germany may provide additional risk cover up to a level matching that provided by a private credit insurer, though the set 2.88 percent annual premium for the additional cover is well above the cost of commercially available insurance, GDV said.

Credit insurers will handle the business and pass the cost for additional cover directly to the government, which should simplify the process for corporate customers, GDV said.

France has a similar programme, in which the state can step in to help a company if a credit insurer reduces coverage limits or declines to extend risk cover.

Bundesbank President Axel Weber last week expressed scepticism about the government covering such commercial defaults, saying it entailed considerable risk for taxpayers.


UNDERWRITING LOSS

The rise in corporate insolvencies in the wake of the financial crisis has boosted losses at credit insurer. GDV predicted that costs and damage claims would reach 114 percent of premium income this year, leading to an underwriting loss of 200 million euros in the segment in 2009.

Premiums in the segment are expected to fall 1.5 percent to 1.4 billion euros this year, GDV said.

Germany's five biggest credit insurers currently have about 39,600 domestic contracts on their books, compared with 38,800 at the end of 2007 before the economic crisis, the industry body said.

"This is clear evidence that credit insurers are standing by their clients," GDV's Ingenlath said.

Credit insurance in Germany is dominated by three players -- Allianz unit Euler Hermes, Atradius and French credit insurer Coface, part of French investment bank Natixis, which together have 90 percent of the market.

The head of Euler Hermes, the world's biggest credit insurer, has predicted that the number of global insolvencies would rise by a third this year and increase again in 2010.