I am tabling this statement for the benefit of Honourable and Right Honourable Members to bring to their attention details of the support provided to businesses and supply chains through the Trade Credit Reinsurance Scheme.
Trade Credit Insurance provides cover to hundreds of thousands of business-to-business-transactions, particularly in non-service sectors, such as manufacturing and construction. It insures suppliers selling goods against the company they are selling to defaulting on payment, giving businesses the confidence to trade with one another. Due to Coronavirus and businesses struggling to pay bills, they risk having credit insurance withdrawn, or premiums increasing to unaffordable levels.
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. This will ensure that the vast majority of insurance coverage is maintained across the market. This will support supply chains and help businesses to trade with confidence as they can trust that they will be protected if a customer defaults or delays on payment.
The scheme is available on a temporary basis for nine months backdated to 1 April 2020 and running until 31 December 2020 with the potential for extension if required. The key parameters of the scheme are:
- The scheme is delivered through a temporary reinsurance agreement with 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 scheme rules will require participating insurers to comply with certain undertakings regarding the conduct of their business during the period of the scheme. This includes conditions that they will forgo profits and not pay dividends or bonuses for senior staff for their guaranteed Trade Credit Insurance business.
- The scheme will be followed by a joint BEIS & HMT-led review of the Trade Credit Insurance market to ensure it can continue to support businesses in future.
- Implementation of the scheme is subject to State aid approval, agreement of full form documentation with insurers and acceptance of applications from insurers for participation.
The new scheme is launched today, 4 June. The Government will be subject to a new contingent liability, and I will be laying a Departmental Minute containing a description of the liability undertaken.
For more information on this and other support for business, please go to https://www.businesssupport.gov.uk/
This statement has also been made in the House of Lords: