ATI spotlights the outlook for claims amid COVID-19

Lucy Machel, Head of Claims & Recoveries at African Trade Insurance Agency (ATI) discusses how claims are not yet being impacted in the pandemic. How long will restructuring and deferrals help to hold off actual claims being made?

Pandemic hits hard, but not evenly

African economies have not been spared the effects of the shock and turbulence caused by the COVID-19 pandemic. The pandemic has significantly slowed down economic growth and is expected to trigger severe economic contraction. This situation has in turn aggravated already weak fiscal trends in the continent and in some cases, led to a deterioration of the capacity to service debts. Various economies have come under immense strain as the pandemic exacerbates pre-existing financial pressures and intensifies difficulties in managing debts. Nevertheless, the real impact of the pandemic on African economies is arguably less grave than reported. Even so, there exists diverse contexts in Africa thus no single Africa COVID-19 projection holds.

In terms of claims, cases have been far fewer than anticipated – at least from ATI’s point of view. As the world continues to reel from COVID-19, impacts of the pandemic on the performance of ATI’s insured transactions across various countries in Africa remain minimal. ATI is yet to witness an increase in reported losses on insured transactions.

This is attributable to the fact that many banks and financial institutions (who form bulk of ATI policyholders) are embracing forbearance measures by agreeing to restructures, deferrals, rescheduling and moratoriums on payment obligations. There has however been an increase in the number of policies on watch due to slight payment delays or likelihood of delays.

Pre-claim interventions

ATI is a multilateral insurer with a mandate of facilitating trade and investments in Africa. To this end, ATI provides insurance products that protect companies and investors against credit and investment risks. Like other providers of credit insurance, ATI is a bridge between finance, trade and investments and a catalyst for economic growth and development. ATI thus plays a pivotal role in protecting exporters, investors and financiers as well as enabling efficient functioning of international trade and investments for a wider economic good.

Therefore, in the current tough economic times, ATI operates with the objective of mitigating the risks. This objective is achieved not just by paying claims but also by investing all reasonable effort in cooperation with the insureds to avert occurrence of losses and cushion policyholders against loss in keeping with the catalytic role.

ATI’s COVID-19 response has therefore been characterised by robust portfolio monitoring and pre-claim intervention mechanisms largely aided by ATI’s relationship with various African Governments and multilateral finance institutions operating in the continent and its status as a Preferred Creditor. These have enabled ATI to attain pre-claim workout solutions such as debt refinancing aimed at resolving issues sustainably in favour of all parties during such difficult times.

Forbearance and other loss mitigation measures

From ATI’s standpoint, the low levels of claims reported despite the impacts of COVID-19, is also a result of forbearance measures extended by some creditors on both sovereign and non-sovereign transactions. It appears that the World Bank and the International Monetary Fund (IMF) request to G20 countries to establish the Debt Service Suspension Initiative was taken as a rallying call by various creditors who, in cognizance of their business relations and the overriding circumstances, offered deferral, rescheduling and moratoriums with credit insurance support also being extended accordingly.

The forbearance measures in the context of mitigating the impacts of the COVID-19 pandemic therefore led to an increase in the number of policies on watch as opposed to an increase in the number of claims. The latter would have been the case if it had not been for the forbearance measures which have in effect mitigated losses and stopped the damage from being as grave as it would have been. However, these remain temporary loss mitigation measures and perhaps the real impact of COVID-19 in terms of claims is yet to come.